-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mtb2SgFRwFkUQ8M8217NvYtmNCPcI/CwJwhneV0qlkHQV0mvUqgIrVsZq7pcritO hb3W8I0DZIQXW9ephlFn8w== 0000891618-00-001099.txt : 20000224 0000891618-00-001099.hdr.sgml : 20000224 ACCESSION NUMBER: 0000891618-00-001099 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JUNIPER NETWORKS INC CENTRAL INDEX KEY: 0001043604 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 770422528 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-96171 FILM NUMBER: 551747 BUSINESS ADDRESS: STREET 1: 385 RAVENDALE DR CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 6505268000 MAIL ADDRESS: STREET 1: 385 RAVENDALE DR CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 S-1/A 1 AMENDMENT NO. 2 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 2000 REGISTRATION NO. 333-96171 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ AMENDMENT NO. 2 FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 ------------------------------------ JUNIPER NETWORKS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 3661 77-042258 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
385 RAVENDALE DRIVE MOUNTAIN VIEW, CA 94043 (Address, including zip code, of Registrant's principal executive offices) ------------------------------------ LISA C. BERRY GENERAL COUNSEL AND SECRETARY JUNIPER NETWORKS, INC. 385 RAVENDALE DRIVE, MOUNTAIN VIEW, CA 94043 (650) 526-8000 (Name, address, and telephone number, including area code, of agent for service) ------------------------------------ Copies to: JUDITH MAYER O'BRIEN NORA L. GIBSON JOHN A. FORE LINDSAY C. FREEMAN BRUCE M. MCNAMARA LORA D. BLUM WILSON SONSINI GOODRICH & ROSATI BROBECK PHLEGER & HARRISON LLP PROFESSIONAL CORPORATION ONE MARKET 650 PAGE MILL ROAD SPEAR STREET TOWER PALO ALTO, CA 94304 SAN FRANCISCO, CA 94105 (650) 493-9300 (415) 442-0900
------------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. [ ] If this Form is file to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM TITLE OF EACH CLASS AGGREGATE AMOUNT OF OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(4) - -------------------------------------------------------------------------------------------------------------- % Convertible Subordinated Notes due March 15, 2007 $575,000,000(2) $151,800 Common Stock, par value $0.00001 per share, issuable upon conversion of % Convertible Subordinated Notes due March 15, 2007 (3) (3) - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration pursuant to Rule 457(o) of the Securities Act of 1933. (2) Exclusive of accrued interest, if any. Includes $75,000,000 in principal amount of convertible notes which the underwriters have an option to purchase. (3) No additional consideration will be received for any shares of common stock issued upon conversion or exchange of the % Convertible Subordinated Notes due March 15, 2007. Pursuant to Rule 416 under the Securities Act of 1933 this registration statement also includes an indeterminate number of shares that may be issued upon conversion of the % Convertible Subordinated Notes due March 15, 2007 as a result of anti-dilution and other provisions of the convertible notes. (4) Previously paid. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION. DATED FEBRUARY 23, 2000. $500,000,000 [LOGO] % Convertible Subordinated Notes due March 15, 2007 ------------------------ We are offering $500,000,000 of % Convertible Subordinated Notes due March 15, 2007. You may convert your convertible notes into our common stock at any time prior to maturity or their prior redemption or repurchase by us. The convertible notes will mature on March 15, 2007. The conversion rate is shares per each $1,000 principal amount of convertible notes, subject to adjustment. This is equivalent to a conversion price of approximately $ per share. Our common stock is quoted on the Nasdaq National Market under the symbol "JNPR". On February 22, 2000, the last reported bid price for the common stock was $230.75 per share. We will pay interest on the convertible notes on March 15 and September 15 of each year. The first interest payment will be made on September 15, 2000. The convertible notes are subordinated in right of payment to all of our senior debt. The convertible notes will be issued only in denominations of $1,000 and integral multiples of $1,000. On or after the third business day after March 15, 2003, we have the option to redeem the convertible notes at the redemption prices set forth in this prospectus. You have the option to require us to repurchase any convertible notes held by you if there is a change in control, under the circumstances and at the price described in this prospectus. See "Risk Factors" beginning on page 6 of this prospectus to read about important factors you should consider before buying the convertible notes. ------------------------ NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------
Per Note Total -------- ------------ Initial public offering price............................... % $ Underwriting discount....................................... % $ Proceeds, before expenses, to Juniper Networks.............. % $
The initial public offering price set forth above does not include accrued interest, if any. Interest on the convertible notes will accrue from , 2000 and must be paid by the purchaser if the convertible notes are delivered after , 2000. To the extent that the underwriters sell more than $500,000,000 principal amount of convertible notes, the underwriters have the option to purchase up to an additional $75,000,000 principal amount of convertible notes from us at the initial public offering price less the underwriting discount. ------------------------ The underwriters expect to deliver the convertible notes in book-entry form only through the facilities of The Depository Trust Company against payment in New York, New York on , 2000. GOLDMAN, SACHS & CO. CREDIT SUISSE FIRST BOSTON ROBERTSON STEPHENS DAIN RAUSCHER WESSELS SG COWEN WARBURG DILLON READ LLC ------------------------ Prospectus dated , 2000. 3 PROSPECTUS SUMMARY This summary may not contain all of the information that may be important to you. You should read the entire prospectus as well as the information regarding us, including our consolidated financial statements and the accompanying notes, appearing elsewhere in this prospectus. All information in this prospectus assumes the underwriters' overallotment option with respect to the convertible notes offering is not exercised unless otherwise stated. ABOUT JUNIPER NETWORKS We are a leading provider of Internet infrastructure solutions that enable Internet service providers and other telecommunications service providers to meet the demands resulting from the rapid growth of the Internet. We deliver next generation Internet backbone routers that are specifically designed, or purpose-built, for service provider networks and offer our customers increased reliability, performance, scalability, interoperability and flexibility, and reduced complexity and cost compared to current alternatives. Our flagship product is the M40 Internet backbone router and we recently introduced the M20, an Internet backbone router purpose-built for emerging service providers. Our Internet backbone routers combine the features of our JUNOS Internet Software, high performance ASIC-based (application specific integrated circuit) packet forwarding technology and Internet optimized architecture into a purpose-built solution for service providers. Unlike conventional routers, which were originally developed for enterprise applications and are increasingly inadequate for service provider use in public networks, our Internet backbone routers are specifically designed to accommodate the size and scope of the Internet. We sell our Internet backbone routers primarily through a direct sales force in the United States and through value added resellers internationally. Our M40 Internet backbone router is currently used by several of the world's leading service providers, such as UUNet, an MCI WorldCom Company, Cable & Wireless USA, AT&T/IBM Global Services, Frontier GlobalCenter Inc. and Verio Inc. We believe that the Internet will continue to grow at significant rates and will evolve into the next generation public network, superseding and expanding upon many of the functions provided by the traditional telephone network. This trend will drive the need for new Internet infrastructure equipment that can deliver the high levels of reliability and scalability needed in a public network. We believe we have developed the first commercially available Internet backbone routing platform specifically designed and built to meet these requirements. Ryan Hankin Kent, an industry research firm, estimated in 1999 that the market for Internet backbone routers was $169 million in 1998 and is expected to increase to approximately $5.5 billion in 2003. Our objective is to become the primary supplier of high performance Internet backbone infrastructure equipment. The following are key elements of our strategy: - leverage our early lead as supplier of purpose-built Internet infrastructure equipment; - work closely with our key customers; - increase our penetration in major service providers; - leverage our early successes to rapidly penetrate new customers; - expand our sales and distribution network; - maintain and extend our technology leadership; and - enable new IP-based services. Our principal executive offices are located at 385 Ravendale Drive, Mountain View, California 94043, and our telephone number is (650) 526-8000. Juniper Networks is a registered trademark and the Juniper Networks logo, M40, M20 and JUNOS are trademarks of Juniper Networks. Each trademark, trade name or service mark of any other company appearing in this prospectus belongs to its holder. Information contained on our website, www.juniper.net, does not constitute part of this prospectus. We were incorporated in the State of California in February 1996, and we reincorporated in the State of Delaware in March 1998. 1 4 THE OFFERING Securities offered......... $500,000,000 aggregate principal amount of % Convertible Subordinated Notes due March 15, 2007. We also have granted the underwriters an over-allotment option to purchase up to an additional $75,000,000 aggregate principal amount of convertible notes. Offering price............. 100% of the principal amount of the convertible notes, plus accrued interest, if any, from , 2000. Interest................... We will pay interest on the convertible notes semi-annually on March 15 and September 15 of each year, commencing September 15, 2000. Conversion................. You may convert your convertible notes into shares of our common stock at a conversion rate of shares of common stock per $1,000 principal amount of convertible notes. This is equivalent to a conversion price of approximately $ per share. The conversion rate may be subject to adjustment. The convertible notes will be convertible at any time before the close of business on the maturity date, unless we have previously redeemed or repurchased the convertible notes. You may convert your convertible notes called for redemption or submitted for repurchase up to and including the business day immediately preceding the date fixed for redemption or repurchase, as the case may be. Subordination.............. The convertible notes are subordinated to our senior debt, as that term is defined in "Description of the Convertible Notes -- Subordination". The convertible notes are also effectively subordinated in right of payment to all indebtedness and other liabilities of our subsidiaries. As of December 31, 1999, we did not have any outstanding senior debt. The indenture under which the convertible notes will be issued will not restrict the incurrence of senior debt or other indebtedness by us. Global note; book-entry system..................... We will issue the convertible notes only in fully registered form without interest coupons and in minimum denominations of $1,000. The convertible notes will be evidenced only by one or more global notes in fully registered form and without coupons deposited with the trustee for the convertible notes, as custodian for DTC. Your interest in the global notes will be shown on, and transfers of your interest can only be made through, records maintained by DTC and its participants and indirect participants. Optional redemption by Juniper.................... On or after the third business day after March 15, 2003, we have the right at any time to redeem some or all of your convertible notes at the redemption prices set forth in this prospectus plus accrued and unpaid interest. 2 5 Repurchase at the option of holders upon a change in control.................... If we experience a change in control, as that term is defined in "Description of Convertible Notes -- Repurchase at Option of Holders Upon a Change in Control", you will have the right, subject to conditions and restrictions, to require us to repurchase some or all of your convertible notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest to the repurchase date. The repurchase price is payable in cash or, at our choice depending on the circumstances, in shares of our common stock, valued at 95% of the average closing sales prices of the common stock for the five trading days preceding and including the third trading day prior to the repurchase date. Use of proceeds............ We anticipate using the net proceeds from this offering for working capital and other general corporate purposes. Should the opportunity arise, we may also use a portion of the net proceeds to fund acquisitions of or investments in complementary businesses, partnerships, minority investments, products or technologies. Events of default.......... Events of default include: - we fail to pay principal of or any premium on any convertible note when due, whether or not the payment is prohibited by the subordination provisions of the indenture; - we fail to pay any interest on any convertible note when due and that default continues for 30 days, whether or not the payment is prohibited by the subordination provisions of the indenture; - we fail to provide the notice that we are required to give in the event of a change in control, whether or not the notice is prohibited by the subordination provisions of the indenture; - we fail to perform any other covenant in the indenture and that failure continues for 60 days after written notice to us by the trustee or the holders of at least 25% in aggregate principal amount of outstanding convertible notes; - we or any of our significant subsidiaries fail to pay when due at final maturity thereof, either at its maturity or upon acceleration, any indebtedness under any bonds, debentures, convertible notes or other evidences of indebtedness for money borrowed, or any guarantee thereof, in excess of $25,000,000 if the indebtedness is not discharged, or the acceleration is not annulled, within 30 days after written notice to us by the trustee or the holders of at least 25% in aggregate principal amount of the outstanding convertible notes; and - events of bankruptcy, insolvency or reorganization with respect to us or any of our significant subsidiaries specified in the indenture. 3 6 Listing of convertible notes...................... The convertible notes will not be listed on any securities exchange or quoted on the Nasdaq National Market. The underwriters have advised us that they currently intend to make a market in the convertible notes. However, the underwriters are not obligated to do so, and any such market making may be discontinued at any time at the sole discretion of the underwriters without notice. Our common stock is traded on the Nasdaq National Market under the symbol "JNPR". Governing law.............. The indenture and the convertible notes will be governed by the laws of the State of New York, without regard to conflicts of laws principles. Risk factors............... You should read the "Risk Factors" section, beginning on page 6, as well as the other cautionary statements, risks and uncertainties described in this prospectus, so that you understand the risks associated with an investment in the convertible notes. SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net revenues.......................................... $102,606 $ 3,807 $ -- Cost of revenues...................................... 45,272 4,416 -- -------- -------- -------- Gross profit (loss)................................... 57,334 (609) -- Operating expenses: Research and development............................ 41,502 23,987 9,406 Sales and marketing................................. 20,931 4,216 1,149 General and administrative.......................... 5,235 2,223 1,043 Amortization of goodwill and purchased intangibles and deferred stock compensation.................. 4,286 1,235 -- -------- -------- -------- Total operating expenses......................... 71,954 31,661 11,598 -------- -------- -------- Operating loss........................................ (14,620) (32,270) (11,598) Interest income, net.................................. 8,011 1,301 1,235 -------- -------- -------- Loss before income taxes.............................. (6,609) (30,969) (10,363) Provision for income taxes............................ 2,425 2 -- -------- -------- -------- Net loss.............................................. $ (9,034) $(30,971) $(10,363) ======== ======== ======== Basic and diluted net loss per share(1)............... $ (0.10) $ (0.80) $ (0.40) ======== ======== ======== Shares used in computing basic and diluted net loss per share(1)........................................ 94,661 38,871 25,773 ======== ======== ======== Pro forma basic and diluted net loss per share (unaudited)(1)...................................... $ (0.07) $ (0.28) ======== ======== Shares used in computing pro forma basic and diluted net loss per share (unaudited)(1)................... 131,480 111,210 ======== ======== OTHER DATA: Ratio of earnings to fixed charges(2)................. -- -- --
4 7
DECEMBER 31, 1999 ------------------------------ ACTUAL AS ADJUSTED(3) ------------ -------------- CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments........... $345,958 832,658 Working capital............................................. 322,170 808,870 Long-term investments....................................... 97,201 97,201 Total assets................................................ 513,378 1,013,378 Total long-term debt........................................ -- 500,000 Stockholders' equity........................................ 457,715 457,715
- --------------- (1) See note 1 of the notes to consolidated financial statements for an explanation of the determination of the shares used to compute net loss per share. All share and per share amounts have been adjusted to reflect the three-for-one split of our common stock paid to stockholders of record on December 31, 1999. (2) The pre-tax loss from continuing operations for the years ended December 31, 1999, 1998 and 1997 are not sufficient to cover fixed charges by a total of approximately $6.6 million in 1999, $31.0 million in 1998 and $10.4 million in 1997. As a result, the ratio of earnings to fixed charges has not been computed for any of these years. (3) Reflects net proceeds of approximately $486,700 from the sale of the convertible notes, assuming an offering price of 100% of the principal amount, and after deducting underwriters' discounts and commissions and estimated offering expenses. 5 8 RISK FACTORS This offering involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. RISKS RELATED TO OUR BUSINESS OUR FAILURE TO INCREASE OUR REVENUES WOULD PREVENT US FROM MAINTAINING PROFITABILITY. We have incurred significant losses since inception. As of December 31, 1999, we had an accumulated deficit of $52.2 million. Although our net revenues have grown from zero in the quarter ended September 30, 1998 to $45.4 million in the quarter ended December 31, 1999, we cannot be certain that our revenues will continue to grow. We have large fixed expenses and we expect to continue to incur significant and increasing sales and marketing, product development and administrative expenses. As a result, we will need to generate significantly higher revenues to maintain profitability. See "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Consolidated Financial Statements and the Notes to the Consolidated Financial Statements for more information on our results of operations. OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT. As a result of our limited operating history, it is difficult to forecast accurately our revenues, and we have limited meaningful historical financial data upon which to base planned operating expenses. Specifically, we began operations in February 1996, introduced our M40 Internet backbone router product in September 1998, began shipping the M40 in volume in October 1998 and introduced the M20 in December 1999. In addition, our operating expenses are largely based on anticipated revenue trends and a high percentage of our expenses are and will continue to be fixed in the short-term. The revenue and income potential of our products and business are unproven and the market that we are addressing is rapidly evolving. If we do not achieve our expected revenues, our operating results will be below our expectations and the expectations of investors and market analysts, which could cause the price of our convertible notes and common stock to decline. OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP PRODUCTS AND PRODUCT ENHANCEMENTS THAT WILL ACHIEVE MARKET ACCEPTANCE. We cannot assure you that we will be able to develop new products or product enhancements in a timely manner, or at all. Any failure to develop new products or product enhancements will substantially decrease market acceptance and sales of our present and future products which will significantly harm our business and financial results. Even if we are able to develop and commercially introduce new products and enhancements, we cannot assure you that the new products or enhancements will achieve widespread market acceptance. Any failure of our future products to achieve market acceptance could harm our business and financial results. THE LONG SALES AND IMPLEMENTATION CYCLES FOR OUR PRODUCTS, AS WELL AS OUR EXPECTATION THAT CUSTOMERS WILL SPORADICALLY PLACE LARGE ORDERS WITH SHORT LEAD TIMES MAY CAUSE REVENUES AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM QUARTER TO QUARTER. A customer's decision to purchase our products involves a significant commitment of its resources and a lengthy evaluation and product qualification process. As a result, our sales cycle may be lengthy. Throughout the sales cycle, we often spend considerable time educating and providing information to prospective customers regarding the use and benefits of the products. Even after making the decision to purchase, our customers tend to deploy the products slowly and deliberately. Timing of deployment can vary widely and depends on the skill set of the 6 9 customer, the size of the network deployment, the complexity of the customer's network environment and the degree of hardware and software configuration necessary to deploy the products. Customers with large networks usually expand their networks in large increments on a periodic basis. Accordingly, we expect to receive purchase orders for significant dollar amounts on an irregular basis. Because of our limited operating history, we cannot predict these sales and development cycles. These long cycles, as well as our expectation that customers will tend to sporadically place large orders with short lead times, may cause our revenues and operating results to vary significantly and unexpectedly from quarter to quarter. WE HAVE A LIMITED NUMBER OF CUSTOMERS UPON WHOM WE RELY, AND ANY DECREASE IN REVENUE FROM THESE CUSTOMERS COULD HAVE AN ADVERSE EFFECT ON US. We began recognizing revenues from sales of the M40 in the quarter ended December 31, 1998. A significant portion of our revenues to date have been recognized from a limited number of customers, with two customers, UUNet and Cable & Wireless, representing 58% of our revenues for the year ended December 31, 1999. We expect that the majority of our revenues will continue to depend on sales of our products to a small number of customers. Any downturn in the business of these customers or potential new customers could significantly decrease the sales of our products to these customers which could seriously harm our revenues and results of operations. IF THE INTERNET DOES NOT CONTINUE TO EXPAND AS A WIDESPREAD COMMUNICATIONS MEDIUM, DEMAND FOR OUR PRODUCTS MAY DECLINE SIGNIFICANTLY. Our future success depends on the continued growth of the Internet as a widely used medium for commerce and communication. If the Internet does not continue to expand as a widespread communications medium and commercial marketplace, the growth of the market for Internet infrastructure equipment may not continue and the demand for our products could decline significantly. WE FACE INTENSE COMPETITION THAT COULD REDUCE OUR MARKET SHARE. Competition in the Internet infrastructure market is intense. This market has historically been dominated by Cisco Systems with other companies such as Nortel Networks and Lucent Technologies providing products to a smaller segment of the market. In addition, a number of private companies have announced plans for new products to address the same problems which our products address. In order to compete effectively in the Internet router market we must deliver products which: - provide extremely high network reliability; - provide high performance interfaces and packet processing capabilities; - scale easily and efficiently with minimum disruption to the network; - interoperate with existing network designs and equipment vendors; - reduce the complexity of the network by decreasing the need for overlapping equipment; and - provide a cost-effective solution for service providers. If we are unable to compete successfully against our current and future competitors, we could experience price reductions, reduced gross margins and loss of market share, any one of which could materially and adversely affect our business, operating results and financial condition. See "Business -- Competition" for detailed information about our competition. 7 10 WE MUST EXPAND SUBSTANTIALLY OUR DIRECT AND INDIRECT SALES OPERATIONS IN ORDER TO INCREASE MARKET AWARENESS AND SALES OF OUR PRODUCTS. Our products and services require a sophisticated sales effort targeted at several key people within each of our prospective customers' organizations. This sales effort requires the efforts of select personnel as well as specialized system and consulting engineers. We have recently expanded our direct sales force and plan to hire additional qualified sales personnel and system and consulting engineers. Competition for these individuals is intense, and we might not be able to hire the kind and number of sales personnel and system and consulting engineers we need. In addition, we believe that our future success is dependent upon establishing successful relationships with a variety of distribution partners. We have entered into agreements with several value added resellers, some of whom also sell products that compete with our products. We cannot be certain that we will be able to reach agreement with additional resellers on a timely basis or at all, or that they will devote adequate resources to selling our products. If we are unable to expand our direct and indirect sales operations, we may not be able to increase market awareness or sales of our products, which may prevent us from maintaining profitability. IF WE DO NOT EXPAND OUR CUSTOMER SERVICE AND SUPPORT ORGANIZATION SUBSTANTIALLY, SALES OF OUR PRODUCTS MAY BE SIGNIFICANTLY REDUCED. The complexity of our products and the difficulty of installing them require highly trained customer service and support personnel. We currently have a small customer service and support organization and will need to increase our staff to support new customers and the expanding needs of existing customers. Hiring customer service and support personnel is very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of the Internet. If we are unable to expand our customer service and support organization, we may not be able to increase sales of our products, which would seriously harm our business. WE ARE DEPENDENT ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR SEVERAL KEY COMPONENTS, AND IF WE ARE UNABLE TO BUY THESE COMPONENTS ON A TIMELY BASIS, WE WILL NOT BE ABLE TO DELIVER OUR PRODUCTS TO OUR CUSTOMERS. We currently purchase several key components, including ASICs and power supplies, from single or limited sources. We worked with IBM for over three years to develop several of our key proprietary application specific integrated circuits, or ASICs, which are custom designed integrated circuits built to perform a specific function more rapidly than a general purpose microprocessor. IBM is currently our sole source supplier of these ASICs. These ASICs are very complex, and we may not be able to develop an alternate source to IBM in a timely manner, which could hurt our ability to deliver our products to our customers. We also purchase power supplies from a single source and purchase other custom components from other sole or limited sources. If we are unable to buy these components on a timely basis, we will not be able to deliver the products to our customers, which would negatively impact present and future sales and revenue which would, in turn, seriously harm our business. WE CURRENTLY DEPEND PRIMARILY ON ONE CONTRACT MANUFACTURER, AND IF WE HAVE TO QUALIFY A NEW CONTRACT MANUFACTURER WE MAY LOSE REVENUE AND DAMAGE OUR CUSTOMER RELATIONSHIPS. Solectron, a third party manufacturer for numerous companies, manufactures the M40 and M20 at its Milpitas, California facility on a purchase order basis and is our primary manufacturer. We currently do not have a long-term supply contract with Solectron. If we should fail to effectively manage our relationship with Solectron, or if Solectron experiences delays, disruptions or quality control problems in its manufacturing operations, our ability to ship products to our 8 11 customers could be delayed. We have begun the process to qualify a new third party contract manufacturer. Qualifying a new contract manufacturer and commencing volume production is expensive and time consuming. If we are required or choose to change contract manufacturers, we may lose revenue and damage our customer relationships. IF WE FAIL TO ACCURATELY PREDICT OUR MANUFACTURING REQUIREMENTS, WE COULD INCUR ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS. Because we currently do not have a long-term supply contract with Solectron, it is not obligated to supply products to us for any specific period, in any specific quantity or at any certain price, except as may be provided in a particular purchase order. We provide forecasts of our demand to Solectron up to six months prior to scheduled delivery of products to our customers. If we overestimate our requirements, Solectron may have excess inventory, which would increase our costs. If we underestimate our requirements, Solectron may have an inadequate inventory, which could interrupt manufacturing of our products and result in delays in shipments and revenues. In addition, lead times for materials and components we order vary significantly and depend on factors such as the specific supplier, contract terms and demand for each component at a given time. We also may experience shortages of certain components from time to time, which also could delay the manufacturing of our products. THE UNPREDICTABILITY AND SEASONALITY OF OUR QUARTERLY RESULTS MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK AND THE CONVERTIBLE NOTES. Our revenues and operating results will vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control and any of which may cause our stock price to fluctuate. The primary factors that may affect us include the following: - demand for our products; - the timing of sales of our products; - the timing of recognizing revenue and deferred revenue; - new product introductions by our competitors; - changes in our pricing policies or the pricing policies of our competitors; - our ability to develop, introduce and ship new products and product enhancements that meet customer requirements in a timely manner; - our ability to obtain sufficient supplies of the sole or limited source components, including ASICs and power supplies for our products; - increases in the prices of the components we purchase; - our ability to attain and maintain production volumes and quality levels for our products; - Internet growth and demand for Internet infrastructure; - prototype expenses; - costs related to acquisitions of technology or businesses; and - general economic conditions as well as those specific to the Internet and related industries. In addition, we are dependent on decisions by customers to build their Internet infrastructure, which decisions are in turn dependent upon the success and expected demand for the services offered by those customers. Furthermore, the long sales and implementation cycles for our products, as well as the degree to which customers will sporadically place large orders with short 9 12 lead times, may cause revenues and operating results to vary significantly from quarter to quarter. We plan to increase significantly our operating expenses to fund greater levels of research and development, expand our sales and marketing operations, broaden our customer support capabilities and develop new distribution channels. We also plan to expand our general and administrative functions to address the increased reporting and other administrative demands, that have resulted from being a publicly traded company and the increasing size of our business. Our operating expenses are largely based on anticipated revenue trends and a high percentage of our expenses are, and will continue to be, fixed in the short term. As a result, a delay in generating or recognizing revenue for the reasons set forth above, or for any other reason, could cause significant variations in our operating results from quarter to quarter and could result in substantial operating losses. Due to the foregoing factors, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is likely that in some future quarters, our operating results may be below the expectations of public market analysts and investors. In this event, the price of our common stock and the convertible notes may fall. IF OUR PRODUCTS DO NOT INTEROPERATE WITH OUR CUSTOMERS' NETWORKS, INSTALLATIONS WILL BE DELAYED OR CANCELLED AND COULD RESULT IN SUBSTANTIAL PRODUCT RETURNS WHICH COULD HARM OUR BUSINESS. Our products are designed to interface with our customers' existing networks, each of which has different specifications and utilizes multiple protocol standards. Many of our customers' networks contain multiple generations of products that have been added over time as these networks have grown and evolved. Our products must interoperate with all of the products within these networks as well as future products in order to meet our customers' requirements. If we find errors in the existing software used in our customers' networks, we must modify our JUNOS Internet Software to fix or overcome these errors so that our products will interoperate and scale with the existing software and hardware. If our products do not interoperate with those of our customers' networks, installations could be delayed, orders for our products could be cancelled or our products could be returned. This would also seriously harm our reputation, which could seriously harm our business and prospects. BECAUSE OUR PRODUCTS ARE COMPLEX AND ARE DEPLOYED IN COMPLEX ENVIRONMENTS, THEY MAY HAVE ERRORS OR DEFECTS THAT WE FIND ONLY AFTER FULL DEPLOYMENT, WHICH COULD SERIOUSLY HARM OUR BUSINESS. Our products are highly complex and designed to be deployed in very large and complex networks. Although we have thoroughly tested our products, because of the nature of the product, it can only be fully tested when deployed in very large networks with high amounts of traffic. To date, our products have been deployed only on a limited basis. Consequently, our customers may discover errors or defects in the hardware or the software after it has been fully deployed. If we are unable to fix errors or other problems that may be identified in full deployment, we could experience: - loss of or delay in revenues and loss of market share; - loss of customers; - failure to achieve market acceptance; - diversion of development resources; - increased service and warranty costs; - legal actions by our customers; and - increased insurance costs. 10 13 CUSTOMER PRODUCT LIABILITY CLAIMS BASED ON ERRORS IN OUR SOFTWARE OR MISTAKES IN PERFORMING OUR SERVICES COULD RESULT IN COSTLY LITIGATION AGAINST US. We may be subject to claims based on errors in our software or mistakes in performing our services, including claims relating to damages to our customers' internal systems. Our contracts with our customers generally contain provisions designed to limit our exposure to potential product liability claims, such as disclaimers of warranties and limitations on liability for special, consequential and incidental damages. We believe our product liability insurance is adequate to cover potential product liability claims. However, a product liability claim, whether successful or not, could seriously impact our capital reserves, harm our reputation, and direct the attention of key personnel away from our business, any of which could harm our business. PROBLEMS ARISING FROM USE OF OUR PRODUCTS IN CONJUNCTION WITH OTHER VENDORS' PRODUCTS COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION. Service providers typically use our products in conjunction with products from other vendors. As a result, when problems occur, it may be difficult to identify the source of the problem. These problems may cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems. OUR PRODUCTS ARE NEW AND FACE RAPID TECHNOLOGICAL CHANGES AND EVOLVING STANDARDS AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR BUSINESS COULD BE HARMED. The Internet infrastructure market is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. In developing our products, we have made, and will continue to make, assumptions with respect to which standards will be adopted by our customers and competitors. If the standards adopted are different from those which we have chosen to support, market acceptance of our products may be significantly reduced or delayed and our business will be seriously harmed. In addition, the introduction of products embodying new technologies and the emergence of new industry standards could render our existing products obsolete. In addition, in order to introduce products embodying new technologies and new industry standards, we must be able to gain access to the latest technologies of our suppliers such as IBM. Any failure to gain access to the latest technologies could harm our business and operating results. OUR FAILURE TO ESTABLISH AND MAINTAIN KEY CUSTOMER RELATIONSHIPS MAY RESULT IN DELAYS IN INTRODUCING NEW PRODUCTS OR CAUSE CUSTOMERS TO FOREGO PURCHASING OUR PRODUCTS. Our future success will also depend upon our ability to develop and manage key customer relationships in order to introduce a variety of new products and product enhancements that address the increasingly sophisticated needs of our customers. Our failure to establish and maintain these customer relationships may adversely affect our ability to develop new products and product enhancements. In addition, we may experience delays in releasing new products and product enhancements in the future. Material delays in introducing new products and enhancements or our inability to introduce competitive new products may cause customers to forego purchases of our products and purchase those of our competitors, which could seriously harm our business. IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR BUSINESS, FINANCIAL CONDITION AND PROSPECTS COULD BE SERIOUSLY HARMED. Our ability to successfully offer our products and implement our business plan in a rapidly evolving market requires an effective planning and management process. We continue to 11 14 increase the scope of our operations domestically and internationally and have grown our headcount substantially. At December 31, 1998, we had a total of 156 employees and at December 31, 1999, we had a total of 335 employees. In addition, we plan to continue to hire a significant number of employees this year. This growth has placed, and our anticipated growth in future operations will continue to place, a significant strain on our management systems and resources. We expect that we will need to continue to improve our financial and managerial controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force worldwide. Furthermore, we expect that we will be required to manage multiple relationships with various customers and other third parties. WE DEPEND ON OUR KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY CHANGING MARKET AND IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OUR ABILITY TO SELL OUR PRODUCTS COULD BE HARMED. Our future success depends upon the continued services of our executive officers and other key engineering, sales, marketing and support personnel. None of our officers or key employees is bound by an employment agreement for any specific term and we do not have "key person" life insurance policies covering any of our employees. We also intend to hire a significant number of engineering, sales, marketing and support personnel in the future, and we believe our success depends, in large part, upon our ability to attract and retain these key employees. Competition for this personnel is intense, especially in the San Francisco Bay area. In particular, we have experienced difficulty in hiring qualified ASIC, software, system and test and customer support engineers and there can be no assurance that we will be successful in attracting and retaining these individuals. The loss of the services of any of our key employees, the inability to attract or retain qualified personnel in the future, or delays in hiring required personnel, particularly engineers and sales personnel, could delay the development and introduction of and negatively impact our ability to sell our products. IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS WE COULD INCUR SUBSTANTIAL COSTS IN DEFENDING OURSELVES. Companies in our industry whose employees accept positions with competitors frequently claim that their competitors have engaged in unfair hiring practices. We have received claims of this kind in the past and we cannot assure you that we will not receive claims of this kind in the future as we seek to hire qualified personnel or that those claims will not result in material litigation. We could incur substantial costs in defending ourselves against these claims, regardless of their merits. OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY CHALLENGES. We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also enter into confidentiality or license agreements with our employees, consultants and corporate partners, and control access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our products is difficult and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. 12 15 NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR MAY BE VERY EXPENSIVE. From time to time we may be required to license technology from third parties to develop new products or product enhancements. We cannot assure you that third party licenses will be available to us on commercially reasonable terms, if at all. The inability to obtain any third-party license required to develop new products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost either of which could seriously harm our business, financial condition and results of operations. WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS WHICH COULD SERIOUSLY HARM OUR BUSINESS. In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. Although we have never been involved in any intellectual property litigation, we may be a party to litigation in the future to protect our intellectual property or as a result of an alleged infringement of others' intellectual property. Claims for alleged infringement and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation of our proprietary rights. These lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation could also force us to do one or more of the following: - stop selling, incorporating or using our products that use the challenged intellectual property; - obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all; or - redesign those products that use such technology. If we are forced to take any of the foregoing actions, our business may be seriously harmed. Although we carry general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. For more information concerning our intellectual property rights, see "Business -- Intellectual Property." WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS THAT COULD HARM OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. We market, sell and service our products in the United States and internationally. We have established offices in England, The Netherlands, France and Germany to market, sell and service our products in Europe and in Japan, Hong Kong and Australia to market, sell and service our products in the Asia Pacific region. We intend to expand substantially our international operations and enter new international markets. This expansion will require significant management attention and financial resources to develop successfully direct and indirect international sales and support channels. We may not be able to maintain or increase international market demand for our products. We currently have limited experience in marketing and distributing our products internationally and in developing versions of our products that comply with local standards. In addition, international operations are subject to other inherent risks, including: 13 16 - greater difficulty in accounts receivable collection and longer collection periods; - difficulties and costs of staffing and managing foreign operations; - the impact of recessions in economies outside the United States; - unexpected changes in regulatory requirements; - certification requirements; - reduced protection for intellectual property rights in some countries; - potentially adverse tax consequences; and - political and economic instability. Our export revenues were $22.5 million for the year ended December 31, 1999 and are generally denominated in U.S. dollars. Consequently, we do not currently engage in currency hedging activities. However, a portion of our international revenues may be denominated in foreign currencies in the future. ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND HARM OUR FINANCIAL CONDITION. We intend to make investments in complementary companies, products or technologies. In the event of any such investments or acquisitions, we could: - issue stock that would dilute our current stockholders' percentage ownership; - incur debt; - assume liabilities; - incur amortization expenses related to goodwill and other intangible assets; or - incur large and immediate write-offs. These acquisitions also involve numerous risks, including: - problems combining the purchased operations, technologies or products; - unanticipated costs; - diversion of management's attention from our core business; - adverse effects on existing business relationships with suppliers and customers; - risks associated with entering markets in which we have no or limited prior experience; and - potential loss of key employees, particularly those of the acquired organizations. We cannot assure you that we will be able to successfully integrate any businesses, products, technologies or personnel that we might acquire in the future. RISKS RELATED TO THE CONVERTIBLE NOTES SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH FLOW. We will have substantial amounts of outstanding indebtedness, primarily the convertible notes, upon the completion of this offering. As a result of this indebtedness, our principal and interest payment obligations will increase substantially. There is the possibility that we may be unable to generate cash sufficient to pay the principal of, interest on and other amounts due in respect of our indebtedness when due. We may also add additional equipment loans and lease lines to finance capital expenditures and may obtain additional long-term debt, working capital lines of credit and lease lines. 14 17 Our substantial leverage could have significant negative consequences, including: - increasing our vulnerability to general adverse economic and industry conditions; - limiting our ability to obtain additional financing; - requiring the dedication of a substantial portion of our expected cash flow from operations to service our indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including capital expenditures; - limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and - placing us at a possible competitive disadvantage relative to less leveraged competitors and competitors that have better access to capital resources. THE CONVERTIBLE NOTES WILL RANK BELOW FUTURE SENIOR DEBT WE MAY INCUR, AND WE MAY BE UNABLE TO REPAY OUR OBLIGATIONS UNDER THE CONVERTIBLE NOTES. The convertible notes will be unsecured and subordinated in right of payment to all future senior debt we may incur. Because the convertible notes will be subordinate to our senior debt, if we experience: - a bankruptcy, liquidation or reorganization; - an acceleration of the convertible notes due to a default; or - other specified events, then our assets will be used to satisfy the holders of our senior debt before we will be able to make additional payments on the convertible notes. Further, the assets of each of our subsidiaries must be used to satisfy the holders of the subsidiary's indebtedness before we can use the subsidiary's assets to make payments on the convertible notes. Therefore, we may not have sufficient assets remaining to pay amounts due on any or all of the convertible notes. The convertible notes will be our obligations exclusively. The indenture for the convertible notes does not limit our ability, or that of our subsidiaries, to incur senior debt, other indebtedness and other liabilities. We may have difficulty paying what we owe under the convertible notes if we, or any of our subsidiaries, incur additional indebtedness or other liabilities. From time to time we and our subsidiaries may incur additional indebtedness, including senior debt, which could adversely affect our ability to pay our obligations under the convertible notes. WE MAY BE UNABLE TO REPAY OR REPURCHASE THE CONVERTIBLE NOTES. At maturity, the entire outstanding principal amount of the convertible notes will become due and payable. In addition, if we experience a change in control, as defined in "Description of the Convertible Notes -- Repurchase at Option of Holders Upon a Change in Control", each holder of the convertible notes may require us to repurchase all or a portion of that holder's convertible notes. At maturity or if a change in control occurs, we may not have sufficient funds or may be unable to arrange for additional financing to pay the principal amount or repurchase price due. Under the terms of the indenture for the convertible notes, we may elect, subject to certain conditions, to pay the repurchase price upon a change in control with shares of our common stock. Any future borrowing arrangements or agreements relating to senior debt to which we become a party may contain restrictions on, or prohibitions against, our repayments or repurchases of the convertible notes. If the maturity date or change in control occurs at a time when our other arrangements prohibit us from repaying or repurchasing the convertible notes, we could try to obtain the consent of the lenders under those arrangements, or we could attempt to refinance the borrowings that contain the restrictions. If we do not obtain the necessary 15 18 consents or refinance these borrowings, we will be unable to repay or repurchase the convertible notes. In that case, our failure to repurchase any tendered convertible notes or repay the convertible notes due upon maturity would constitute an event of default under the indenture. Any such default, in turn, may cause a default under the terms of our senior debt. As a result, in those circumstances, the subordination provisions of the indenture would, absent a waiver, prohibit any repayment or repurchase of the convertible notes until we pay the senior debt in full. THE PRICE OF OUR COMMON STOCK AND THEREFORE THE PRICE OF OUR CONVERTIBLE NOTES MAY FLUCTUATE SIGNIFICANTLY, WHICH MAY RESULT IN LOSSES FOR INVESTORS. The market price for our common stock may be volatile. We expect our stock price to be subject to fluctuations as a result of a variety of factors, including factors beyond our control. These include: - quarterly variations in operating results; - changes in financial estimates by securities analysts; - changes in market valuations of Internet related companies; - announcements by us or our competitors of new products or of significant acquisitions, strategic partnerships or joint ventures; - any loss of a major customer; - additions or departures of key personnel; - any deviations in net revenues or in losses from levels expected by securities analysts; - future sales of common stock; and - volume fluctuations, which are particularly common among highly volatile securities of Internet related companies. We may fail to meet the expectations of our stockholders or of securities analysts at some time in the future, and our stock price, and therefore the price of our convertible notes, could decline as a result. THERE MAY BE NO PUBLIC MARKET FOR THE CONVERTIBLE NOTES. Prior to this offering, there has been no trading market for the convertible notes. Although the underwriters have advised us that they currently intend to make a market in the convertible notes, they are not obligated to do so and may discontinue their market-making activities at any time without notice. Consequently, we cannot ensure that any market for the convertible notes will develop, or if one does develop, that it will continue for any period of time. If an active market for the convertible notes fails to develop or continue, this failure could harm the trading price of the convertible notes. We do not intend to apply for listing of the notes on any securities exchange or any automated quotation system. MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE OUR PROFITS OR MARKET VALUE. The net proceeds from the sale of the convertible notes have not been allocated for a particular purpose. We intend to use the net proceeds for general corporate purposes and working capital. In addition, we may use the net proceeds to make investments in and acquisitions of complementary businesses, partnerships, minority investments, products or technologies, although no agreement or understanding with respect to any future acquisition or investment has been reached. Our management will have significant discretion as to the use of the net proceeds of the offering and you will not have the opportunity, as part of your investment 16 19 decision, to assess whether the proceeds are being used appropriately. The net proceeds from this offering may be applied to uses that ultimately may not increase our operating results or our market value. See "How We Intend to Use the Proceeds From This Offering." OUR EXECUTIVE OFFICERS AND DIRECTORS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER JUNIPER NETWORKS AFTER THIS OFFERING, WHICH COULD ENABLE THEM TO CONTROL OUR BUSINESS AND AFFAIRS. Our executive officers, directors and entities affiliated with them, beneficially own approximately 40% of our outstanding common stock as of December 31, 1999. These stockholders, if acting together, would be able to influence significantly all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. See "Principal Stockholders." PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD PREVENT A CHANGE IN OUR CONTROL. Provisions of our amended and restated certificate of incorporation, bylaws, and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. See "Description of Capital Stock." FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS THE PRICE OF OUR CONVERTIBLE NOTES AND COMMON STOCK. After this offering, we will have outstanding 156,485,674 shares of common stock. Sales of a substantial number of shares of our common stock in the public market following this offering could cause the price of our convertible notes and common stock to decline. In particular, on February 8, 2000, certain of our executive officers, in coordination with Goldman, Sachs & Co., sold an aggregate of 855,000 shares of common stock in block trades on the open market. Any block sales could cause the price of our convertible notes, once issued, and our common stock to decline. In connection with this offering and other than the block trades described above, our officers and directors have agreed not to dispose of or hedge any shares of our common stock for a total of 90 days after the effective date of this prospectus, subject to exceptions described in the Underwriting Agreement. NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that involve risks and uncertainties. We use words such as "anticipates," "believes," "plans," "expects," "future," "intends" and similar expressions to identify forward-looking statements. This prospectus also contains forward-looking statements attributed to third parties relating to their estimates regarding the growth of Internet use. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in the preceding pages and elsewhere in this prospectus. HOW WE INTEND TO USE THE PROCEEDS FROM THIS OFFERING We are offering $500,000,000 of convertible notes. After deducting the underwriters' discounts and estimated offering expenses, we anticipate retaining approximately $486,700,000 of the proceeds from the sale of the convertible notes, assuming a sale of the convertible notes at 100% of the principal amount. We anticipate retaining approximately $559,825,000 if the underwriters exercise their over-allotment option in full. 17 20 We intend to use our net proceeds from this offering for general corporate purposes and working capital requirements. We may also use a portion of the net proceeds to fund possible investments in and acquisitions of complementary businesses, partnerships, minority investments, products or technologies. Currently there are no commitments or agreements regarding any such acquisitions or investments. Pending their ultimate use, we intend to invest the net proceeds from this offering in short-term and long-term securities. PRICE RANGE OF COMMON STOCK Our common stock has been quoted on the Nasdaq National Market under the symbol "JNPR" since June 25, 1999. Prior to that time, there was no public market for the common stock. The following table sets forth, for the periods indicated, the high and low closing prices per share of the common stock as reported on the Nasdaq National Market. All per share amounts have been adjusted to reflect the three-for-one split of our common stock paid to stockholders of record on December 31, 1999.
HIGH LOW ------- ------- 1999 Second Quarter (since June 25, 1999)........................ $ 49.66 $ 32.96 Third Quarter............................................... $ 75.67 $ 41.67 Fourth Quarter.............................................. $118.17 $ 60.71 2000 First Quarter (through February 22, 2000)................... $241.25 $102.58
On February 22, 2000 the reported last sale price of the common stock on the Nasdaq National Market was $230.75. As of December 31, 1999 there were approximately 300 stockholders of record. DIVIDEND POLICY We have never declared or paid any dividends on our capital stock. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any dividends in the foreseeable future. 18 21 CAPITALIZATION The following table sets forth our actual capitalization as of December 31, 1999, and our capitalization as adjusted to give effect to the issuance of $500,000,000 in convertible notes being offered hereby at an assumed initial public offering price of 100% principal amount. You should read this table in conjunction with our consolidated financial statements and the related notes included elsewhere herein.
DECEMBER 31, 1999 ----------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Debt: % Convertible Subordinated Notes due March 15, 2007.... $ -- $500,000 Other long-term debt........................................ -- -- Stockholders' equity: Convertible preferred stock, $0.00001 par value, 10,000,000 shares authorized, none issued or outstanding (actual and as adjusted)................... -- -- Common stock, $0.00001 par value, 200,000,000 shares authorized, 155,938,599 shares issued and outstanding (actual and as adjusted)(1)............................ 2 2 Additional paid-in capital................................ 513,696 513,696 Deferred stock compensation............................... (3,001) (3,001) Accumulated other comprehensive loss...................... (815) (815) Accumulated deficit....................................... (52,167) (52,167) -------- -------- Total stockholders' equity............................. 457,715 457,715 -------- -------- Total capitalization................................. $457,715 $957,715 ======== ========
- --------------- (1) Based on shares outstanding as of December 31, 1999. It excludes: (a) 24,365,521 shares of common stock reserved for issuance under our Amended 1996 Stock Option Plan, of which 22,469,165 shares were subject to outstanding options at a weighted average exercise price of $25.11 per share and 1,896,356 shares available for future grants, and (b) 1,500,000 shares available for issuance under our 1999 Employee Stock Purchase Plan. Shares issued and outstanding and shares reserved for issuance have been adjusted to reflect the three-for-one split of our common stock to be paid to stockholders of record on December 31, 1999. See "Description of Capital Stock" and Note 5 to the Consolidated Financial Statements. 19 22 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes thereto included elsewhere herein. The consolidated statement of operations data set forth below for the fiscal years ended December 31, 1999, 1998 and 1997, and the consolidated balance sheet data as of December 31, 1999 and 1998 have been derived from our audited consolidated financial statements included elsewhere herein, which have been audited by Ernst & Young LLP, independent auditors. The consolidated statement of operations data set forth below for the period from February 2, 1996 (inception) to December 31, 1996, and the consolidated balance sheet data as of December 31, 1997 have been derived from our audited consolidated financial statements not included or incorporated by reference elsewhere herein, which have been audited by Ernst & Young LLP, independent auditors. The consolidated balance sheet data at December 31, 1996 are derived from unaudited consolidated financial statements that are not included or incorporated by reference herein. The historical results are not necessarily indicative of results to be expected for any future period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
PERIOD FROM INCEPTION (FEBRUARY 2, YEAR ENDED DECEMBER 31, 1996) TO ------------------------------ DECEMBER 31, 1999 1998 1997 1996 -------- -------- -------- --------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net revenues............................................... $102,606 $ 3,807 $ -- $ -- Cost of revenues........................................... 45,272 4,416 -- -- -------- -------- -------- -------- Gross profit (loss)........................................ 57,334 (609) -- -- Operating expenses: Research and development................................. 41,502 23,987 9,406 1,850 Sales and marketing...................................... 20,931 4,216 1,149 -- General and administrative............................... 5,235 2,223 1,043 89 Amortization of goodwill and purchased intangibles and deferred stock compensation............................ 4,286 1,235 -- -- -------- -------- -------- -------- Total operating expenses............................... 71,954 31,661 11,598 1,939 -------- -------- -------- -------- Operating loss............................................. (14,620) (32,270) (11,598) (1,939) Interest income, net....................................... 8,011 1,301 1,235 140 -------- -------- -------- -------- Loss before income taxes................................... (6,609) (30,969) (10,363) (1,799) Provision for income taxes................................. 2,425 2 -- -- -------- -------- -------- -------- Net loss................................................... $ (9,034) $(30,971) $(10,363) $ (1,799) ======== ======== ======== ======== Basic and diluted net loss per share(1).................... $ (0.10) $ (0.80) $ (0.40) $ (0.15) ======== ======== ======== ======== Shares used in computing basic and diluted net loss per share(1)................................................. 94,661 38,871 25,773 11,874 ======== ======== ======== ======== Pro forma basic and diluted net loss per share (unaudited)(1)........................................... $ (0.07) $ (0.28) ======== ======== Shares used in computing pro forma basic and diluted net loss per share (unaudited)(1)............................ 131,480 111,210 ======== ======== OTHER DATA: Ratio of earnings to fixed charges......................... --(2) --(2) --(2) --(3)
- --------------- (1) See Note 1 of notes to consolidated financial statements for an explanation of the determination of the shares used to compute net loss per share. All share and per share amounts have been adjusted to reflect the three-for-one split of our common stock to be paid to stockholders of record on December 31, 1999. (2) The pre-tax loss from continuing operations for the years ended December 31, 1999, 1998 and 1997 are not sufficient to cover fixed charges by a total of approximately $6.6 million in 1999, $31.0 million in 1998 and $10.4 million in 1997. As a result, the ratio of earnings to fixed charges has not been computed for any of these years. (3) The ratio of earnings to fixed charges calculation is not applicable as there were no fixed charges during this period. 20 23
AS OF DECEMBER 31, -------------------------------------- 1999 1998 1997 1996 -------- ------- ------- ------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents, and short-term investments... $345,958 $20,098 $46,227 $ 9,468 Working capital...................................... 322,170 14,432 44,691 9,315 Long-term investments................................ 97,201 -- -- -- Total assets......................................... 513,378 36,671 50,210 10,388 Total long-term debt................................. -- 5,204 2,083 408 Stockholders' equity................................. 457,715 17,065 46,048 9,728
21 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and our consolidated financial statements and the related notes thereto included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors including the risks discussed in "Risk Factors" and elsewhere herein. OVERVIEW We are a leading provider of Internet infrastructure solutions that enable Internet service providers and other telecommunications service providers, collectively described in this discussion as service providers, to meet the demands resulting from the rapid growth of the Internet. Our Internet backbone routers are specifically designed and purpose-built for service provider networks and offer our customers increased reliability, performance, scalability, interoperability and flexibility, and reduced complexity and cost compared to current alternatives. In September 1998 we began shipping our first product, the M40 Internet backbone router, with volume shipments beginning in October 1998. We began shipping the M20, a derivative of the M40, in December 1999. We currently sell our products to major service providers in North America through our direct sales force and sell to international customers primarily through value added resellers. From our inception in February 1996 through September 1998, our operating activities were primarily devoted to expanding our research and development capabilities, designing our ASICs, developing our software, developing and testing the M40 and developing other products. We also expanded our administrative, marketing and sales organizations and implemented strategic relationships. Since our inception, we have incurred significant losses, and as of December 31, 1999, we had an accumulated deficit of $52.2 million. We achieved our first quarter of profitability in the quarter ended December 31, 1999. In order to maintain profitability, we will need to generate significantly higher revenues because we expect to continue to incur significant research and development, sales and marketing and general and administrative expenses as the business and operations continue to grow. RESULTS OF OPERATIONS NET REVENUES We began generating net revenues in the fourth quarter of 1998. Our total net revenue increased to $102.6 million for the year ended December 31, 1999 from $3.8 million for the year ended December 31, 1998. The increase in net revenues was primarily due to the following three factors: 1999 being the first full year of product sales; an increase in market acceptance of our products; and overall growth in the marketplace due to the growth of the Internet and an increase in emerging customers and networks. Our revenues for the year ended December 31, 1999 were derived from sales of one product, the M40. While we have introduced new products, such as the M20, and plan to continue to introduce new products, there can be no assurance that we will be successful in these efforts or that such products will be well-received by our existing and potential customer base. A limited number of customers have historically accounted for a substantial portion of our revenues. Two customers accounted for 58% of our total net revenues for the year ended December 31, 1999 and two customers accounted for 100% of our revenues for the year ended December 31, 1998. We expect that a significant portion of our future revenues will continue to come from sales of our products to a relatively small number of customers because our direct 22 25 sales and marketing efforts are focused primarily on the world's leading service providers. For the year ended December 31, 1999, export sales accounted for approximately 22% of our total net revenue. We are seeking to diversify our customer base, but we cannot be certain that our efforts in this regard will be successful. Because the market for Internet backbone routers is new and evolving, the volume and timing of orders are difficult to predict. A customer's decision to purchase our products typically involves a significant commitment of their resources and a lengthy evaluation and product qualification process which involves technical evaluation, integration, testing, network planning and implementation and typically takes several months. Even after making the decision to purchase our products, our customers tend to deploy the products slowly and deliberately. Timing of deployment can vary widely. Customers with large networks usually expand their networks in large increments on a periodic basis. Accordingly, we expect to receive purchase orders for significant dollar amounts on an irregular basis. Because of our limited operating history, we cannot predict these sales and development cycles. Long sales and implementation cycles for our products, as well as the expectation that customers will tend to sporadically place large orders with short lead times, may cause revenues and operating results to vary significantly and unexpectedly from quarter to quarter. Historically, selling prices in the Internet infrastructure equipment market have been relatively stable. However, as competitors launch new products, this pricing trend may change. We generally recognize product revenue at the time of shipment, assuming that collectibility is probable, unless we have future obligations for network interoperability or have to obtain customer acceptance, in which case revenue is deferred until these obligations are met. Revenue from service obligations is deferred and recognized on a straight-line basis over the contractual period. Amounts billed in excess of revenue recognized are included as deferred revenue and accounts receivable in the accompanying consolidated balance sheets. At December 31, 1999, a total of $19.3 million of revenue was deferred, which we currently expect to recognize in 2000. Our products generally carry a one year warranty that includes factory repair services as needed for replacement parts. Estimated expenses for warranty obligations are accrued as revenue is recognized. COST OF REVENUES Cost of revenues for the year ended December 31, 1999, were $45.3 million resulting in a gross margin of 55.9% for the year. Cost of revenues for the year ended December 31, 1998 were $4.4 million. The increase in cost of revenues is primarily related to the increase in net revenues, as well as increases in our customer service and support organizations. We expect cost of revenues to continue to increase as net revenues increase. Our gross margins are highly variable and dependent on many factors, some of which are outside of our control. Some of the primary factors affecting gross margins include: - demand for our products and services; - changes in our pricing policies and those of our competitors; - new product introductions both by us and by our competitors; - the mix of interfaces sold; - the volume manufacturing pricing we are able to attain from our partner for outsourced manufacturing; and - the mix of products and services sold. Cost of revenues includes the cost of our manufacturing overhead and customer service and support organizations. We have outsourced our manufacturing, our repair operations and the 23 26 majority of our supply chain management operations. Accordingly, a significant portion of our cost of revenues consists of payments to Solectron, our primary contract manufacturer. Solectron manufactures our products using quality assurance programs and standards which we established. Manufacturing engineering and documentation control are conducted at our facility in Mountain View, California. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses increased to $41.5 million in 1999 from $24.0 million in 1998 and $9.4 million in 1997. Research and development expenses consist primarily of salaries and related personnel costs, non-recurring engineering charges and prototype costs related to the design, development, testing and enhancement of our ASICs. Salary and related personnel costs accounted for 40% of the increase from 1998 to 1999 and 30% of the increase from 1997 to 1998. Non-recurring engineering and prototype costs accounted for approximately 20% of the increase from 1998 to 1999 and 50% of the increase from 1997 to 1998. We expense our research and development costs as they are incurred. Several components of our research and development effort require significant expenditures, the timing of which can cause significant quarterly variability in our expenses. For example, a large number of prototypes are required to build and test our products and the building and testing process occurs over a short period of time. Our ASIC development requires a payment for non-recurring engineering charges at the beginning of the process to design and develop the ASIC, regardless of whether the integrated circuit works. In addition, a per unit cost is payable as we purchase ASICs. With several large ASICs in our architecture, we will incur large non-recurring engineering and prototype expenses with every enhancement of the existing products and for any new product development. We expect to continue to devote substantial resources to the development of new products and the enhancement of existing products. We believe that research and development is critical to our strategic product development objectives and that to leverage our leading technology and meet the changing requirements of our customers, we will need to fund investments in several development projects in parallel. As a result, we expect our research and development expenses to increase in absolute dollars in the future. SALES AND MARKETING EXPENSES Sales and marketing expenses increased to $20.9 million in 1999 from $4.2 million in 1998, and $1.1 million in 1997. The increases from period to period in sales and marketing expenses were primarily attributable to salaries, commissions (resulting from increased sales) and related expenses for personnel engaged in sales, marketing and customer engineering support functions, including international expansion, as well as costs associated with promotional and other marketing expenses. We intend to expand our direct and indirect sales operations substantially, both domestically and internationally, in order to increase market awareness of our products and to better support our existing customers worldwide. We believe that continued investment in sales and marketing is critical to our success and expect these expenses to increase in absolute dollars in the future as we hire additional sales and marketing personnel, initiate additional marketing programs to support our products and establish sales offices in new domestic and international locations. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased to $5.2 million in 1999 from $2.2 million in 1998 and $1.0 million in 1997. General and administrative expenses consist primarily of salaries and related expenses for executive, finance, accounting, facilities, and human resources personnel, as well as recruiting expenses, professional fees and other corporate expenses. The increases from period to period in general and administrative expenses were primarily 24 27 attributable to the costs associated with additional headcount to support increased levels of business activity. In addition, the increase from 1998 to 1999 was also due to costs associated with being a publicly traded company. We expect general and administrative expenses to increase in absolute dollars as we add personnel and incur additional costs related to the growth of our business and our operation as a public company. AMORTIZATION OF GOODWILL AND PURCHASED INTANGIBLES AND DEFERRED STOCK COMPENSATION In connection with the grant of certain stock options to employees during 1998 and the three months ended March 31, 1999, we recorded deferred compensation of $6.4 million in 1998 and $1.1 million in 1999 representing the difference between the deemed value of the common stock for accounting purposes and the exercise price of these options at the date of grant. Deferred compensation is presented as a reduction of stockholders' equity and is amortized over the vesting period of the applicable options using the graded vesting method. This compensation expense relates to stock options granted to individuals in all operating expense categories. In November 1999, we acquired certain intellectual property and intangible assets resulting in our recording of $18.4 million of goodwill and other intangibles. The goodwill and other intangibles will be amortized over a three-year period. We expensed $4.3 million of goodwill and purchased intangibles and deferred compensation during 1999, and $1.2 million of deferred compensation during 1998. INTEREST INCOME, NET Net interest income includes income earned on cash and investments partially offset by expenses related to financing obligations. Net interest income was $8.0 million in 1999, $1.3 million in 1998 and $1.2 million in 1997. The increase from 1998 to 1999 is directly due to interest earned on large cash and investment balances as a result of our initial public offering in June 1999 and our secondary offering in October 1999. PROVISION FOR INCOME TAXES We recorded a tax provision of $2.4 million for the year ended December 31, 1999. The provision for income taxes consists primarily of federal alternative minimum taxes, state taxes and foreign taxes. As of December 31, 1999 we had approximately $37.0 million of federal net operating loss carryforwards and $32.0 million of state net operating loss carryforwards for tax reporting purposes available to offset future taxable income. Such net operating loss carryforwards expire at various dates beginning in 2004 to the extent that they are not utilized. We have not recognized any benefit from the future use of loss carryforwards for these periods, or for any other periods, since inception. Management's evaluation of all the underlying assumptions of future profitable operations contain risks that do not provide sufficient assurance to recognize the tax benefits currently. 25 28 QUARTERLY RESULTS OF OPERATIONS The following table presents our operating results for each quarter during the years ended December 31, 1999 and 1998. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited financial statements appearing elsewhere herein. In the opinion of management, all necessary adjustments consisting only of normal recurring adjustments, have been included to present fairly the unaudited quarterly results when read in conjunction with our audited consolidated financial statements and the related notes appearing elsewhere herein. These operating results are not necessarily indicative of the results of any future period.
QUARTER ENDED --------------------------------------------------- DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 1999 1999 1999 1999 ------------ ------------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net revenues............................... $45,442 $29,564 $17,556 $10,044 Cost of revenues........................... 18,389 12,490 8,046 6,347 ------- ------- ------- ------- Gross profit............................. 27,053 17,074 9,510 3,697 Operating expenses: Research and development................. 15,820 11,510 7,991 6,181 Sales and marketing...................... 8,869 5,610 3,849 2,603 General and administrative............... 1,781 1,701 977 776 Amortization of goodwill and purchased intangibles and deferred stock compensation.......................... 1,689 802 891 904 ------- ------- ------- ------- Total operating expenses.............. 28,159 19,623 13,708 10,464 ------- ------- ------- ------- Operating loss............................. (1,106) (2,549) (4,198) (6,767) Interest income and provision for income taxes, net............................... 4,186 962 346 92 ------- ------- ------- ------- Net income (loss).......................... $ 3,080 $(1,587) $(3,852) $(6,675) ======= ======= ======= ======= Basic net income (loss) per share.......... $ 0.02 $ (0.01) $ (0.07) $ (0.15) ======= ======= ======= ======= Diluted net income (loss) per share........ $ 0.02 $ (0.01) $ (0.07) $ (0.15) ======= ======= ======= =======
26 29
QUARTER ENDED --------------------------------------------------- DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, 1998 1998 1998 1998 ------------ ------------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net revenues............................... $ 3,807 $ -- $ -- $ -- Cost of revenues........................... 3,815 382 180 39 ------- -------- ------- ------- Gross loss............................... (8) (382) (180) (39) Operating expenses: Research and development................. 6,145 8,284 6,061 3,497 Sales and marketing...................... 1,718 1,215 764 519 General and administrative............... 882 562 444 335 Amortization of deferred stock compensation.......................... 648 374 192 21 ------- -------- ------- ------- Total operating expenses.............. 9,393 10,435 7,461 4,372 ------- -------- ------- ------- Operating loss............................. (9,401) (10,817) (7,641) (4,411) Interest income and provision for income taxes, net............................... 117 238 438 506 ------- -------- ------- ------- Net loss................................... $(9,284) $(10,579) $(7,203) $(3,905) ======= ======== ======= ======= Basic and diluted loss per share........... $ (0.22) $ (0.27) $ (0.20) $ (0.12) ======= ======== ======= =======
Our revenues and operating results will vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control and any of which may cause the price of our common stock and the convertible notes to fluctuate. The primary factors that may affect us include the following: - demand for our products; - the timing of sales of our products; - the timing of recognizing revenue and deferred revenue; - new product introductions by our competitors; - changes in our pricing policies or the pricing policies of our competitors; - our ability to develop, introduce and ship new products and product enhancements that meet customer requirements in a timely manner; - our ability to obtain sufficient supplies of sole or limited source components; - increases in the prices of the components we purchase; - our ability to attain and maintain production volumes and quality levels for the M40; - decisions by end-users to reallocate their information resources to other purposes; - Internet growth and demand for Internet infrastructure; - prototype expenses; - costs related to acquisitions of technology or businesses; and - general economic conditions as well as those specific to the Internet and related industries. In addition, we are dependent on decisions by customers to build their Internet infrastructure, which decisions are in turn dependent upon the success and expected demand for the services 27 30 offered by those customers. Furthermore, the long sales and implementation cycles for the M40, as well as the degree to which customers will sporadically place large orders with short lead times, may cause revenues and operating results to vary significantly from quarter to quarter. We plan to increase significantly our operating expenses to fund greater levels of research and development, expand our sales and marketing operations, broaden our customer support capabilities and develop new distribution channels. We also plan to expand our general and administrative functions to address the increased reporting and other administrative demands, which have resulted from being a publicly traded company and the increasing size of our business. Our operating expenses are largely based on anticipated revenue trends, and a high percentage of our expenses are and will continue to be fixed in the short term. As a result, a delay in generating or recognizing revenue for the reasons set forth above or for any other reason could cause significant variations in our operating results from quarter to quarter and could result in substantial operating losses. Due to the foregoing factors, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is likely that in some future quarters, our operating results may be below the expectations of public market analysts and investors. In this event, the price of our common stock and the convertible notes may fall. LIQUIDITY AND CAPITAL RESOURCES Prior to our initial public offering, we financed operations primarily through the private placement of convertible preferred stock and capital leases. In June 1999, we completed the initial public offering of our common stock and realized net proceeds from the offering of approximately $65.2 million. In October 1999, we completed a secondary public offering of our common stock and realized net proceeds from the offering of $324.3 million. At December 31, 1999, we had cash and cash equivalents of $158.0 million, short-term investments of $187.9 million and long-term investments of $97.2 million. We regularly invest our excess funds in money market funds, commercial paper and government and non-government debt securities. Net cash provided by operating activities was $20.5 million for the year ended December 31, 1999. Net cash used in operating activities was $24.8 million for the year ended December 31, 1998 and $8.6 million for the year ended December 31, 1997. Net cash flows used in operating activities primarily consist of the net loss for all periods, as well as increases in accounts receivable for the years ending December 31, 1999 and 1998. Net cash provided by operating activities in each period are primarily attributed to non-cash charges such as depreciation and amortization, as well as increases in accounts payable and other liabilities and deferred revenue for the years ended December 31, 1999 and 1998. Net cash used in investing activities was $305.4 million for the year ended December 31, 1999 and $13.0 million for the year ended December 31, 1997. Net cash provided by investing activities was $9.3 million for the year ended December 31, 1998. Net cash used in investing activities for all periods primarily consisted of purchases of available for sale investments, as well as purchases of property and equipment. Net cash provided by investing activities for all periods consisted entirely of maturities of available-for-sale investments. Net cash provided by financing activities was $422.9 million for the year ended December 31, 1999, primarily from the net proceeds of our initial and secondary public offerings, as well as our convertible preferred stock offering, partially offset by payments on lease obligations. Net cash provided by financing activities was $5.2 million for the year ended December 31, 1998, primarily from proceeds from sale-leaseback liabilities, partially offset by payments on lease obligations. Net cash provided by financing activities was $48.5 million for the year ended December 31, 1997, primarily from the net proceeds from private sales of convertible preferred stock, as well as proceeds from sale-leaseback liabilities. 28 31 Our capital requirements depend on numerous factors, including: - market acceptance of our products; - the resources we devote to developing, marketing, selling and supporting our products; and - the timing and extent of establishing international operations. We expect to devote substantial capital resources to continue our research and development efforts, to hire and expand our sales, support, marketing and product development organizations, to expand marketing programs, to establish additional facilities worldwide and for other general corporate activities. Although we believe that our current cash balances will be sufficient to fund our operations for at least the next 12 months, there can be no assurance that we will not require additional financing within this time frame or that such additional funding, if needed, will be available on terms acceptable to us or at all. YEAR 2000 We have not experienced any problems with our computer systems relating to such systems being unable to recognize appropriate dates related to the year 2000. We are also not aware of any material problems with our clients or vendors. Accordingly, we do not anticipate incurring material expenses or experiencing any material operational disruptions as a result of any Year 2000 issues. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued FAS No. 133, Accounting for Derivative Instruments and Hedging Activities. FAS No. 133, as amended, establishes methods for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. We are required to adopt FAS No. 133 effective January 1, 2001. Because we do not currently hold any derivative instruments and do not engage in hedging activities, we do not currently believe that the adoption of FAS No. 133, as amended, will have a significant impact on our financial position, results of operations or cash flows. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, or SAB 101. This summarizes certain areas of the Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. We believe that our current revenue recognition principles comply with SAB 101. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET INTEREST RATE SENSITIVITY The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we have invested in may be subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. To minimize this risk, we maintain our portfolio of cash equivalents and short-term and long-term investments in a variety of securities, including commercial paper, money market funds and government and non-government debt securities. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. See Note 2 to the Consolidated Financial Statements. 29 32 The following table presents the amounts of cash equivalents and investments that are subject to market risk and the weighted-average interest rates, by year of expected maturity for our investment portfolios as of December 31, 1999 and December 31, 1998. This table does not include money market funds because those funds are not subject to market risk.
MATURING MATURING MATURING DURING 2000 DURING 2001 DURING 2002 ----------- ----------- ----------- DECEMBER 31, 1999: Cash equivalents........................................... $ 89,151 $ -- $ -- Weighted-average interest rate........................... 5.68% -- -- Investments................................................ 187,915 93,963 3,238 Weighted-average interest rate........................... 5.96% 6.23% 7.01% -------- -------- -------- Total...................................................... $277,066 $ 93,963 $ 3,238 ======== ======== ======== Weighted-average interest rate........................... 5.87% 6.23% 7.01%
MATURING MATURING MATURING DURING 1999 DURING 2000 DURING 2001 ----------- ----------- ----------- DECEMBER 31, 1998: Cash equivalents........................................... $ 16,520 $ -- $ -- Weighted-average interest rate........................... 5.33% -- --
EXCHANGE RATE SENSITIVITY We operate primarily in the United States, and all sales to date have been made in US dollars. Accordingly, we have had no material exposure to foreign currency rate fluctuations. 30 33 BUSINESS OVERVIEW We are a leading provider of Internet infrastructure solutions that enable Internet service providers and other telecommunications service providers, to meet the demands resulting from the rapid growth of the Internet. We deliver next generation Internet backbone routers that are specifically designed, or purpose-built, for service provider networks and offer our customers increased reliability, performance, scalability, interoperability and flexibility, and reduced complexity and cost compared to current alternatives. Our flagship product is the M40 Internet backbone router, and we recently introduced the M20, an Internet backbone router purpose-built for emerging service providers. Our Internet backbone routers combine the features of our JUNOS Internet Software, high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a purpose-built solution for service providers. Unlike conventional routers, which were originally developed for enterprise applications and are increasingly inadequate for service provider use in public networks, our Internet backbone routers are specifically designed to accommodate the size and scope of the Internet. We believe that the Internet will continue to grow at significant rates and will evolve into the next generation public network, superseding and expanding upon many of the functions provided by the traditional telephone network. This trend will drive the need for new Internet infrastructure equipment that can deliver the high levels of reliability and scalability needed in a public network. We believe we have developed the first commercially available Internet backbone routing platform specifically designed and built to meet these requirements. Ryan Hankin Kent, an industry research firm, estimated in 1999 that the market for Internet backbone routers was $169 million in 1998 and expects that market to increase to approximately $5.5 billion in 2003. We sell our Internet backbone routers primarily through a direct sales force in the United States and through value added resellers internationally. Our M40 Internet backbone router is currently used by several of the world's leading service providers, such as UUNet, an MCI WorldCom Company, Cable & Wireless USA, AT&T/IBM Global Services, Frontier GlobalCenter Inc. and Verio Inc. INDUSTRY BACKGROUND The Internet has evolved from an academic research project into a network of hundreds of separately administered, public and private networks interconnected using Internet Protocol (IP). IP traffic is growing exponentially, driven by increasing numbers of new users, connected devices and Internet transactions. The result of the widespread use of IP is a ubiquitous network that today carries a large and growing amount of data traffic enabling millions of users to share information and conduct electronic commerce. International Data Corporation, an industry research firm, forecasts continued dramatic growth worldwide in the Internet and Internet traffic: - World Wide Web users will grow from approximately 159 million in 1998 to approximately 510 million in 2003; - the number of computers and other devices with communications capability accessing the World Wide Web will grow from approximately 175 million in 1998 to approximately 739 million by 2003; and - commerce revenues on the Internet will grow from approximately $50 billion at the end of 1998 to approximately $1.3 trillion by the end of 2003. The importance of IP continues to increase as the number of users, connected devices and transactions over the Internet grows. This growth highlights the potential for the Internet to replace the traditional telephone network and the pervasive public network. 31 34 The rapid adoption of the Internet and the tremendous growth of IP traffic have prompted service providers to construct large scale data networks. These networks are being optimized to transport data traffic as compared to traditional telephone networks, which were optimized to transport voice traffic. The architecture of these next generation networks is being driven by two key technologies: packet/cell switching and optical networking. Advantages of Packet/Cell Switching. Packet/cell switching technology, which divides data traffic into distinct units called packets or cells and routes each packet or cell independently, provides superior use of available network capacity compared to traditional circuit switching technology. In a circuit switched network, each data stream, such as a voice telephone call between two points, is provided with a dedicated channel, or circuit, for the duration of the telephone call. This approach leads to inefficient use of network resources because a channel is fully dedicated to each transaction, whether or not data is actually flowing at any given moment. As a result, a circuit switched architecture is highly inefficient for Internet applications which tend to create large bursts of data traffic followed by long periods of silence. Packet/cell switching architectures enable greater utilization out of a fixed capacity circuit by combining traffic that has different capacity demands of the circuit at different times. Packet/cell switches more efficiently fill the available network bandwidth with packets of data from many users, thereby reducing the wasted bandwidth due to silence from any one particular user. The use of packet/cell switching is driving the architecture of the Internet to be fundamentally different from traditional circuit switched voice based networks. In packet/cell switched networks, IP has emerged as the de facto standard for providing services to end users. Primary packet/cell switching products include frame relay switches, ATM switches and routers. Rapid Advances in Optical Networking. Optical networking technology uses pulses of light, rather than pulses of electricity, to transmit data in a network, and uses fiber optic connections instead of wires. Optical networking can be used to transmit much more information over a given connection than electrical signals can convey. Optical networking advances, such as dense wavelength division multiplexing, or DWDM, which allows transmission of several frequencies of light over one strand of optical fiber, have enabled still higher data transmission rates and improved efficiency of bandwidth utilization. Currently available DWDM technology enables the transmission of up to 128 frequencies which allows a service provider to multiply the transmission capacity of a fiber optic network by a factor of up to 128. Packet/Cell Technologies Have Not Kept Up With Optical Technologies. Many service providers are installing DWDM equipment and are increasingly focusing on combining IP and optical networking technologies. However, traditional packet switching equipment is not capable of forwarding packets at rates sufficient to keep pace with optical transmission speeds. As affordable fiber optic transmission capacity becomes widely available, the performance and complexity of current packet/cell switching architectures is increasingly constraining the growth of the Internet. The intersection of traditional packet/cell switching and fiber optic technology is demonstrated by the following diagram: [DIAGRAM] THE NEW REQUIREMENTS OF THE INTERNET The reliability and performance of current Internet infrastructure equipment have become critical issues for service providers as they continue to support dramatic growth in IP traffic and increasingly seek to offer new revenue generating, mission-critical services, such as Virtual Private Networks, or VPNs, and voice-over IP. New requirements for next generation networks are driving a set of new requirements for Internet infrastructure equipment, including: 32 35 - high reliability; - high performance; - high performance under stressful conditions; - scalability; - interoperability; - reduced complexity; and - cost effectiveness. High Reliability. As businesses and consumers increasingly rely on the Internet for mission-critical applications, high network reliability becomes essential. Service providers are increasingly expected to provide a similar degree of reliability on the Internet that users have become accustomed to on the traditional telephone network. The "five nines" (99.999%) reliability standard of the traditional telephone network is becoming the target to which suppliers of next-generation Internet platforms are being compared. As service providers begin to bundle voice and data on their networks, this high degree of reliability is becoming even more critical. High Performance. To handle the rapid growth in IP traffic, today's networks increasingly require routers that can operate at interface speeds as high as 2.5 billion bits of information per second (Gbps), and in the near future, 10 Gbps. The processing of data packets at these high speeds requires sophisticated forwarding technology to inspect each packet and assign it to a destination based on priority, data type and other considerations. Since a large number of IP packets, many of which perform critical administrative functions, are small in size, high performance Internet routers need to achieve their specified transmission speeds even for small packet sizes. Since smaller packets increase packet processing demands, routing large numbers of smaller packets tends to be more resource intensive than routing of larger packets. Routers based on general-purpose microprocessors traditionally are unable to forward small packets at maximum rates, and, as a consequence, fail to operate at wire speed, which results in data loss, packet retransmission and network instability. A wire speed router, which achieves its specified transmission rate for any type of traffic passing through it, can accomplish this task. Unlike the enterprise environment, where network capacity is relatively inexpensive and service quality requirements are not as demanding, the additional capacity and related costs of network bandwidth and low service levels resulting from retransmission of dropped packets are increasingly unacceptable to service providers. Thus, provisioning of mission-critical services increasingly requires the high performance enabled by wire speed processing. High Performance Under Stressful Conditions. In a large and complex network, individual components inevitably fail. However, the failure of an individual device or link must not compromise the network as a whole. In a typical network, when a failure occurs, the network loses some degree of capacity and, in turn, a greater load falls on the remaining network routers, which must provide alternate routes. Routers must quickly adjust to the new state of the network to maintain packet forwarding rates and avoid dropping significant numbers of packets when active routes are lost or when large numbers of routes change. Routing protocols are used to accomplish this convergence, a process that places even greater stress on the router. Given the complexity of Internet infrastructure, particularly compared to enterprise networks, the convergence process is far more complex and places a far greater load on the routing software, thereby requiring a much more sophisticated device. Scalability. Due to the rapid growth in Internet users and IP traffic, service providers must continuously expand their networks, both in terms of increased numbers of access points of presence (PoPs), and also greater capacity per PoP. To facilitate this expansion process, Internet infrastructure equipment must be highly scalable. Next generation routers therefore need 33 36 to be upgradeable and configurable to function within constantly changing networks while incurring minimal downtime. Interoperability. Service providers do not have the time or inclination to change their existing networks to favor introduction of new products; rather, new products must be compatible with the existing environment. Given the open and inter-connected nature of the Internet, the complexity of running an Internet backbone network requires a service provider to control and police relations with other service providers. For example, service providers must carefully control what traffic is accepted under what conditions from other providers. Major service providers connect their respective networks via peering arrangements, in which service providers agree to exchange traffic with one another. These arrangements are prone to abuse, such as the illicit use by one service provider of another service provider's backbone to carry excess traffic. Service provider relationships are controlled by a set of rules called policies, implemented through a data protocol called Border Gateway Protocol 4, or BGP4. The software in each router must offer 100% compatibility with all aspects of BGP4, as well as 100% compatibility with the interior protocols and standards used within each service provider's backbone network. The compatibility level must be maintained despite changes to software equipment configuration and network architecture and upgrades to the various protocol standards. Thus, routing software must be flexible and quickly upgradeable to support any necessary revisions. This level of compatibility, in turn, cannot impact the performance, scalability or reliability of the equipment. Attaining this sophisticated level of interoperability is highly challenging and requires significant testing to ensure compatibility. Reduced Complexity. Today's Internet architectures are highly complex. Since traditional routers have not fully met service providers' needs, many service providers have tried to improve Internet backbone performance by adding additional network devices such as ATM switches in the core of the network. As a result, service providers have built networks with ATM switches surrounded by an overlay network of lower capacity routers. These different layers of equipment lead to higher capital costs and the need to manage distinct network elements. ATM switches are also poorly suited to carrying IP traffic, which results in inefficient use of network bandwidth. Moreover, this network design can cause unpredictable router behavior during periods of stress because the routers are not aware of the ATM backbone infrastructure and thus cannot quickly converge if there is a partial network outage. This type of layered backbone network with a complex patchwork of products based on different technologies is represented below: [DIAGRAM] Cost Effectiveness. Exponential growth in IP traffic and intense price competition in the telecommunications market is increasingly requiring service providers to seek solutions that significantly reduce the capital expenditures required to build and operate their networks. In addition to the basic cost of equipment such as routers, service providers incur substantial ancillary costs in terms of space required to deploy the equipment, power consumption and 34 37 on-going operations and maintenance. Service providers therefore want to deploy dense and varied equipment configurations in limited amounts of rack and floor space. Currently, service providers are moving from OC-3 (155 million bits per second, or Mbps) and OC-12 (622 Mbps) speed networks at the core to higher capacity OC-12 and OC-48 (2.5 gigabits per second, or Gbps) speed networks. In turn, the connections from each PoP to the core are evolving from 100 Mbps and OC-3 speeds to gigabit and OC-12 transmission rates. Therefore, in order to continue to scale their networks toward higher data speeds in a cost effective manner, service providers need the ability to mix and match easily many different speed connections at appropriate densities, without significantly increasing the consumption of space or power. There is a clear need for next generation routers that can support high speeds and offer new IP-based services. Network operators are eagerly seeking new solutions that increase the level of scalability and reliability within their networks and reduce the cost and complexity of their architectures. THE JUNIPER NETWORKS SOLUTION We develop, market and sell what we believe is the first commercially available purpose-built Internet backbone router optimized for the specific high performance needs of service providers. Our flagship product, the M40 Internet backbone router, combines the features of our JUNOS Internet Software, high-performance ASIC-based packet forwarding technology and Internet-optimized architecture. As the need for core bandwidth has continued to increase, it created the need for service rich platforms at the edge of the network. In December 1999 we introduced the M20 backbone router, purpose-built to alleviate capacity demand on access points in the PoP. The M40 router operates at the Internet's core while the M20 router extends purpose-built performance capability to service provider entry points. The M20 router is also a cost-efficient solution for new and emerging IP carriers (smaller service providers) capable of enabling a high-bandwidth core and high-speed services for the service provider edge in one device. The M40 and M20 platforms share common software and services, and common ASIC technology for full compatibility and scalability. Critical service provider applications including high-speed access, peering, and hosting are served by both platforms. Physical interfaces are interchangeable between platforms, increasing user flexibility and allowing common sparing. JUNOS Internet Software. Our Internet software, called JUNOS, is one of our key competitive differentiators. JUNOS is designed to meet the IP network routing, operations and control requirements of the world's largest service providers and is an integral component of our product family system architecture. The ability of JUNOS to manage the complex network sharing relationships among service providers allows our products to be placed at critical points in the core of a service provider's network. The JUNOS Internet Software allows our products to have widespread network placement due to its interoperability with Cisco's Internetwork Operating System, or IOS, currently the most broadly deployed routing operating system. The ability to coexist has enabled the M40 to achieve successful deployment where other products in the past have failed. Unconstrained by legacy routing software, we developed JUNOS using a modular design, in which distinct functions are implemented as separate modules with well defined interfaces and interactions, simplifying troubleshooting and maintenance. JUNOS operates in protected memory mode. These features keep functionality distinct, and minimize the impact of any failure that may occur to the specific software application in which the failure occurs. Also, we believe JUNOS' software modularity will enable the continuous upgrade of new enhanced capabilities, while protecting reliability and compatibility with existing networks. The design and development of the JUNOS Internet Software has been possible due to the significant Internet engineering expertise of our development team. Our expert engineers have authored or co-authored 22 Requests for 35 38 Comments, which are documents by industry experts that define major standards for Internet protocols. High Performance ASIC-based Packet Forwarding Technology. The M40 Internet backbone router contains five major application specific integrated circuits that we designed and built using the most advanced ASIC technology. These ASICs contain over five million gates in total, with three of the designs each having a larger number of transistors than the Intel Pentium II microprocessor. The result is a system that is substantially faster than today's general purpose microprocessor based routers in its ability to process and forward IP packets, allowing our products to deliver high performance at wire speed. The ability to enhance and implement large scale ASICs will be a long-term differentiator for us, particularly as the sophistication required to forward traffic across higher speed networks increases. As with the introduction of the M20, we expect to continue to leverage our existing ASIC technology in future products and continue to capitalize on our advanced ASIC design capabilities. Internet Optimized Architecture. As purpose-built Internet backbone routers, our products employ an architecture designed exclusively for the Internet. The system architecture provides a clean separation between the routing and packet-forwarding functions. Separating these two functions enables us to develop independently a full-featured routing protocol and traffic engineering functionality through our JUNOS Internet Software and wire speed packet forwarding performance through high performance ASICs. Furthermore, with the routing and forwarding functions segregated, the products do not sacrifice performance, even when there is a failure in the network. When a failure occurs, JUNOS detects the failure and is able to quickly converge to the new state of the network while the ASICs continue to forward packets at wire speed until they receive updated routes from JUNOS. The key benefits of our solution are: - carrier class reliability; - wire speed performance; - scalability; - interoperability; - flexibility; - reduced complexity; and - cost effectiveness. Carrier Class Reliability. Our products' system architecture provides reliable operation for service providers in large complex networks even under abnormal conditions. This architecture, combined with JUNOS' modular software design, limits the impact of a failure to the specific software application. In addition, the hardware used in our products has been designed with a very high level of integration to maximize the mean time between failure. Moreover, data and instructions have appropriate error correction and parity checks in memory to guarantee their integrity. Wire Speed Performance. We believe the M40 is the first Internet backbone router that can forward minimum-sized IP packets over OC-48 links at wire speed. This maximizes network stability and the capacity utilization of expensive wide area circuits. In contrast to available solutions, the M40 is able to maintain packet forwarding rates and to avoid dropping significant numbers of packets when active routes are lost or when large numbers of routes change. Scalability. Our JUNOS Internet Software is designed to accommodate service providers' scale requirements. In addition, the ASIC interface links have been oversized, enabling the M40 to easily scale with growing levels of data traffic. We believe our software and ASIC designs 36 39 represent a competitive advantage, because it is very difficult for existing vendors to graft these capabilities to their prior generation designs. Interoperability. The M40 has demonstrated consistent interoperability with existing network infrastructures. Our internal test environments confirm interoperability with Cisco routers, a variety of leading ATM and Gigabit Ethernet switches and SONET add drop multiplexers. Deployment of the M40 at several major carriers has demonstrated that JUNOS is interoperable with installed Cisco routers for both routing and administration. In addition, JUNOS enables service providers to manage their complex peering relationships with other service providers despite frequent software, equipment configuration and network architecture changes. Flexibility. Our ASICs are programmable and provide the flexibility to add support for new protocols or changes in existing protocols. Since JUNOS is modular in architecture and already supports existing and emerging protocols, it is also a platform for efficiently introducing new interfaces and new services in the network. Reduced Complexity. Our products are purpose-built for service providers and allow a simple and more structured approach to building Internet backbones compared to the complex topologies in place today. With the M40 and the M20, service providers can build more efficient networks with less dependence on devices like ATM switches, which reduce the operational burdens of running multiple distinct network layers. Additionally, our products offer a thorough implementation of traffic engineering based on MPLS, including the ability to dynamically adapt traffic flows according to rules adopted by the network operator. Traffic engineering refers to a set of capabilities for understanding underlying traffic trends in the network and maximizing the utilization of the network on multiple dimensions. [DIAGRAM] Cost Effectiveness. We have integrated these customer benefits into a system that provides critical routing and forwarding functions at lower overall cost. Our products' wire speed performance allows service providers to reduce network operating cost by making more efficient use of their networks. In addition, we designed the M40 to support a broad variety and density of interfaces in a unit that occupies half a typical telecommunications rack. As a result, service providers can cost effectively deploy the M40, which can be easily upgraded, to connect to a variety of speed and circuit types at the network core. THE JUNIPER NETWORKS STRATEGY Our objective is to become the primary supplier of high performance Internet backbone infrastructure. The key elements of our strategy include: - leverage early lead as supplier of purpose-built Internet infrastructure; - work very closely with key customers; - increase penetration at major service providers; 37 40 - leverage early success to penetrate new customers rapidly; - expand sales and distribution network; - maintain and extend technology leadership; and - enable new IP-based services. Leverage Early Lead as Supplier of Purpose-Built Internet Infrastructure. From inception we have focused solely on designing and building Internet infrastructure for service providers. We have integrated purpose-built software and hardware into an Internet optimized architecture that specifically meets service providers' needs and have seen significantly positive initial responses from our existing and potential customers. We believe that many of these customers will deploy Internet backbone infrastructure equipment from only a few vendors. The purpose-built advantages of our products provide us with a time-to-market lead, which is a critical advantage in gaining rapid penetration as one of these selected vendors. Once our products are widely deployed in a service provider's network as the primary or even secondary Internet backbone infrastructure equipment, we believe we create a significant barrier to entry to potential competitors who do not currently offer commercially-viable next generation routing solutions. Work Very Closely with Key Customers. In developing our products, including our JUNOS Internet Software, we worked very closely with customers to design and build a product specifically to meet their complex needs. Since JUNOS has been available and used by our customers for over a year, we understand clearly the challenges facing these carriers, enabling us to subsequently design additional features and capabilities into both our software and hardware. We believe our close relationships with, and constant feedback from, our customers have been key elements in our design wins and rapid deployment to date. We plan to continue to work very closely with our key customers to implement enhancements to current products as well as to design future products that specifically meet their evolving needs. We are also actively involved with these customers in developing key standards, such as MPLS, and are an active participant in standards organizations such as the Internet Engineering Task Force and the Optical Internetworking Forum. Increase Penetration at Major Service Providers. Our initial focus has been to penetrate several of the largest service providers, where operators have the technical sophistication, resources and desire to test and evaluate our solution against potential alternatives. While we have received initial orders from major service providers, such as UUNet (MCI Worldcom), Cable & Wireless, AT&T/IBM Global Services, Frontier GlobalCenter and Verio, we believe that there is a significant opportunity to further penetrate these large and complex networks given the advantages of our products. As the growth of the Internet requires these service providers to continue to build their networks and replace outdated equipment, we will pursue further opportunities to capture greater market share within these large accounts. Leverage Early Successes to Penetrate New Customers Rapidly. We believe that the Internet infrastructure equipment buying patterns of the medium and smaller-sized service providers typically lag behind those of the larger service providers. Since the network challenges that the large service providers face today are likely to be the problems encountered by smaller service providers in the near future, we believe smaller service providers are likely to deploy equipment similar to larger service providers. Furthermore, smaller service providers often lack the technical resources to thoroughly test different vendors' products. Therefore, they typically piggyback on larger service providers' evaluation efforts by purchasing the same platforms deployed by the larger service providers. Since we have begun to sell to several of the largest service providers, we intend to leverage this success by allocating our marketing efforts towards a greater number of medium and smaller-sized service providers. Expand Sales and Distribution Network. In order to pursue the large number of potential customers for our Internet infrastructure solutions, we plan to continue to aggressively add to our 38 41 sales and distribution capabilities. We are adding to our direct sales and support capabilities for our major customers in North America and adding value-added resellers to sell to and support our other domestic and international customers. In the quarter ended December 31, 1999, we added 12 people to the sales organization for a total of 72 people. Maintain and Extend Technology Leadership. Our Internet software, ASIC technology and Internet-optimized architecture have been key elements to establishing our technology leadership. We believe that these elements are highly leverageable into future products we are currently developing. We intend to maintain and extend our technological leadership in the Internet infrastructure market through continued significant investment in JUNOS Internet Software and ASIC designs to enhance the feature richness of our products and to develop future differentiated offerings for service providers. Enable New IP-based Services. Our platform enables service providers to build networks cost effectively and to offer new differentiated services for their customers more efficiently than conventional products. While we believe that current service providers are likely to be the largest and most successful IP network operators in the near term, many new service providers are likely to emerge oriented around the delivery of IP-based services. These services, which include web hosting, outsourced Internet and intranet services, VPNs, outsourced enterprise applications and voice-over IP, are cost-effectively enabled by our Internet infrastructure platform. Although the market for our products today is driven primarily by the need for traditional Internet network capacity, as other IP-based services and applications continue to grow in importance, the total potential market for our products will continue to grow commensurately. TECHNOLOGY Our core technology consists of our Internet backbone router architecture, JUNOS Internet Software and ASIC hardware expertise. Our general-purpose architecture is initially embodied in the M40, but also is designed to serve as the platform for future generations of products, such as the M20. M40 ARCHITECTURE The architecture of our products is exemplified by the M40. The following diagram illustrates the architecture of the M40 Internet backbone router: [DIAGRAM] The M40 architecture delivers the forwarding rates and network control necessary to scale Internet backbones rapidly and reliably. The M40 system includes a Routing Engine, or RE, and a Packet Forwarding Engine, or PFE. The clean separation of the routing and forwarding functions ensures that the two functions do not compete for the same resources. The Routing Engine. The RE consists of the JUNOS Internet Software operating on an Intel-based platform. The JUNOS Internet Software features Internet-scale protocol support, with 39 42 flexible policy software that enables maximum control over the acceptance, modification and advertisement of route prefixes. In addition, the JUNOS Internet Software offers a range of configuration management tools that simplify the configuration process and help protect against operator error. The RE conducts the processing intensive activity of maintaining the routing table, from which the forwarding table residing in the PFE is derived. The RE is connected to the PFE through a dedicated 100 Mbps link. After constructing or updating the forwarding table, the RE downloads a copy of the table to the PFE. Updates to the forwarding table are done atomically in small incremental steps so that packet forwarding is not interrupted by routing changes. The Packet Forwarding Engine. The M40 delivers wire speed packet forwarding using our ASIC designs. All links between ASICs are oversized, dedicated channels, and the PFE architecture is free from the bottlenecks faced by traditional crossbar switches, which use intelligent agent software to perform both routing and forwarding functions over multiple connections to either parts of the network. Bottlenecks can occur in a crossbar switch because the routing and forwarding functions are not separated. The heart of the PFE is the Internet Processor ASIC. With over one million gates and a lookup rate of over 40 million packets per second, or Mpps, the Internet Processor represents the largest and fastest route lookup ASIC currently available, capable of processing data at throughput rates in excess of 40 Gbps. All lookup rates reflect longest-match route table lookups for all packets and all lookups are performed in hardware. There is no caching mechanism, which is a mechanism by which critical information, such as destinations for traffic, is stored in rapidly accessible memory to make the process of looking up traffic destinations faster. In addition there is no risk of cache misses in the system which can result in slower storage access and thus considerably slower traffic delivery. In addition, the forwarding table can be updated without affecting forwarding rates. The Internet Processor is programmable to support up to four different forwarding tables (layer 2 and/or layer 3) simultaneously. Supported forwarding protocols currently include unicast and multicast IPv4 and MPLS. Finally, the Internet Processor maintains its performance regardless of length of lookups or table size. The PFE also features a shared memory system with single-stage buffering, so packets are written to and read from memory only once. Single-stage buffering greatly reduces the complexities and throughput delays associated with multistage buffering systems. The pooled memory is distributed across the Flexible PIC Concentrator, or FPC, cards, allowing memory to scale as interfaces are added. The Internet Processor also features prefix accounting mechanisms that operate at rates in excess of 20 Mpps. JUNOS INTERNET SOFTWARE: TRAFFIC ENGINEERING AND CONTROL JUNOS Internet Software offers a full suite of Internet-scale, Internet-tested routing protocols. Protocols and software tools, which are used to control and direct network traffic, are critical to an Internet backbone routing solution. Software control is made more important by the fact that the size and complexity of backbone networks are increasing at a time when service providers are looking to differentiate themselves through value-added service offerings. JUNOS Internet Software features implementations of all major Internet protocols, including BGP4, DVMRP, PIM, IS-IS, Open Shortest Path First. IS-IS and Open Shortest Path First are algorithms broadly used in enterprise networks and by service providers to determine and update the running state of the network and available destinations in the network. These implementations were developed in-house by our design team which has extensive experience in addressing the scaling issues of rapidly growing service providers. JUNOS Internet Software also provides a new level of traffic engineering capabilities with its implementation of MPLS. Developed in conjunction with the Internet Engineering Task Force, our MPLS capability offers enhanced visibility into traffic patterns and the ability to control the path traffic takes through the network. Path selection enables service providers to engineer traffic for 40 43 efficient use of network capacity and avoidance of congestion. We expect MPLS and its traffic engineering capabilities to become a crucial tool for service providers as they scale their networks. JUNOS Internet Software features a modular design, with separate programs running in protected memory space in conjunction with an independent operating system. Unlike monolithic, unprotected operating system designs, which are prone to system wide failure, the protected, modular approach improves reliability by ensuring that modifications made to one module have no unwanted side-effects on other sections of the software. In addition, having clean software interfaces between modules facilitates software development and maintenance, enabling faster response to customer needs and delivery of new features. JUNOS Internet Software has been extensively tested in multiple service provider networks to ensure compatibility with Cisco's IOS. Since each major service provider's network is different, this extensive testing is necessary to ensure seamless introduction into existing service provider environments. PRODUCTS M40 INTERNET BACKBONE ROUTER The M40 Internet backbone router is specifically designed for the specialized needs of service providers. The M40 features leading-edge packet-forwarding performance, very high port density and flexibility, and purpose-built Internet software. The M40 delivers higher speed performance for service providers than current alternatives. The M40 helps solve the critical problem of managing backbone networks by ensuring greater control over traffic and better use of network capacity and by providing service providers with the necessary traffic engineering tools, such as MPLS. FEATURES OF THE M40 INTERNET BACKBONE ROUTER Port Density Per Rack-Inch. Our M40 Internet backbone router offers very high port density per rack-inch, ensuring optimal use of valuable and scarce PoP rack space. Because the forwarding engine is oversized, all interfaces perform at wire speed for all packet sizes. The M40 router features a highly flexible combination of backbone interface speeds on the market today. In a 35-inch chassis, the M40 router provides 8 OC-48/STM-16, 32 OC-12/STM-4, 128 OC-3/STM-1 or 128 DS3 interfaces. M40 interfaces are located on Physical Interface Cards, or PICs, which plug into FPC boards. There are eight FPC slots on the M40 and each FPC slot supports up to four PICs and an aggregate throughput rate of more than 2.5 Gbps. In addition to supporting wire speed OC-48 interfaces, each FPC supports various combinations of interfaces, permitting the mixing of interface types and speeds on a single FPC. Supported PIC interfaces include: - 1-port OC-48/STM-16 SONET/SDH; - 1-port OC-12/STM-4 SONET/SDH; - 1-port OC-12/STM-4 ATM; - 4-port OC-3/STM-1 SONET/SDH; - 2-port OC-3/STM-1 ATM; - 4-port DS3; and - 1-port Gigabit Ethernet. 41 44 The PIC interface cards are sold both as part of the initial product configuration and also, subsequently, as add-on items. Interfaces are typically added as the customer's network expands or the capacity of individual links is upgraded. Class-of-Service Flexibility. The M40 router is designed for a variety of class-of-service applications. The M40's queuing mechanism is based on a weighted round-robin selection among multiple queues on outgoing interfaces. Queues can be configured with drop profiles to control the rate of packet drops based on utilization of buffer capacity. Low Power Consumption. As provider PoPs have grown and become more fully populated with systems, power consumption has become a significant concern. Access to sufficient power can be a constraint on the ability of a facility to support a larger network. Because of its low part count and efficient design, our M40 Internet backbone router draws less than 1700 watts of power (35A at 48V) in a fully loaded configuration, enabling it to offer very high performance and port density per watt. Engineered for Stressful Conditions. The M40 architecture is designed to reliably handle stressful network conditions. For example, the route lookup capacity of our Internet Processor has been oversized with respect to interface speeds. In addition, the separation of routing and processing enables the M40 to converge quickly while maintaining wire speed. Built for Reliability. In addition to preserving network reliability, the M40 router is designed to ensure system reliability. The M40's cooling system is fully redundant to protect against individual fan failure. Similarly, the M40's dual power supplies are fully redundant, each capable of supporting the full power load of the system. The M40 can boot off of any one of multiple redundant storage media, ensuring that the system remains operational in the event of a disk failure. For software reliability, JUNOS Internet Software features a protected, modular design with separate processes running in protected memory space on top of an independent operating system. A modular design protects against system wide failures, ensuring that modifications made to one module have no unwanted side-effects on other portions of the code base. Finally, a low component count and an efficient design combine to give the M40 system superior reliability. The M40 base price list ranges between $45,000 and $52,000. PIC module prices begin at $18,000. M20 INTERNET BACKBONE ROUTER The M20 is purpose-built for new emerging carriers and smaller service providers. It can serve a variety of high speed uses, starting at the core. As new carriers build out the core, they determine that there is a need for high speed connectivity to end customers, other carriers and hosting environments. The M20, with its services and configuration flexibility can provide the solution in one chassis, which is both cost and space effective. The M20's small size, high performance and high port density make it an optimum platform for high-speed access applications. Its Gigabit Ethernet port density and 802.1q VLAN support makes it attractive for hosting applications. The M20 also provides forwarding performance and the rich BGP4 and policy implementations (with JUNOS Internet Software) needed for peering applications. Although the M20 measures only 14 inches (35.56 cm) in height, it brings new levels of port density and performance to provider edge applications, supporting nearly 200 DS-3s in a single chassis and 1000 DS-3s in a standard seven-foot (2.13 m) rack. The M20 supports a wide range of interfaces including: - 1-port OC-48/STM-16 SONET/SDH; - 1-port OC-12/STM-4 SONET/SDH; 42 45 - 1-port OC-12/STM-4 ATM; - 4-port OC-3/STM-1 SONET/SDH; - 2-port OC-3/STM-1 ATM; - 4-port DS3; - 1-port Gigabit Ethernet; and - Channelized OC-12/STM-4 to DS-3. The M20 base list price is $20,000. PIC module prices begin at $18,000. CUSTOMERS The following is a representative list of our customers as of December 31, 1999: END USERS: DISTRIBUTORS: AboveNet Communications Alcatel AT&T Ericsson AT&T/IBM Global Services 3Com Broadband Office K-Net Ltd. Cable & Wireless Nissho Electronics Frontier GlobalCenter NTT PC Communications Globix OKI Electronics GST Network Funding Samsung America Level 3 Communications Softway MCI WorldCom-vBNS Solunet MIBH PSINet Qwest Communications International TCG CERFnet. University of Washington UUNet Verio
We recognize revenue from the shipment of products at the time of shipment unless we have future obligations for network interoperability or if we have to obtain customer acceptance. In those cases, we defer recognition of the revenue until we have met our obligations. Two customers, UUNet and Cable & Wireless, comprised approximately 58% of our recognized revenues for the year ended December 31, 1999. SALES AND MARKETING We sell and market our products primarily through our direct sales organization, value-added resellers and an original equipment manufacturer. Direct Sales. Our North American direct sales organization is divided into Western and Eastern regional operations. Our direct sales efforts are focused on the largest service providers. The direct sales account managers cover the market on an assigned account basis and work as a team with account oriented systems engineers. They are directed by a regional operations manager who reports to the North American Director of Sales. We also have technical engineers that consult with and provide our customers with guidance and assistance on the evolution of their networks as it relates to the deployment of our products. These consulting engineers also help in defining the features that are required for our products to be successful in specific applications. A key feature of our sales effort is the relationship we establish at various levels in 43 46 our customers' organization. Our sales team maintains contact with key individuals who have service planning and infrastructure buildout responsibility. Value Added Resellers. We have complemented our direct sales effort in the United States through the addition of several highly focused value added resellers. Our arrangements with value added resellers typically have been non-exclusive and provide the value added reseller with discounts based upon the volume of their orders. Original Equipment Manufacturer Partner. We have established a strategic distribution relationship with Ericsson. We believe that Ericsson has significant customer relationships in place and offers products which complement ours. Ericsson will provide the first level of support to its customers. Our agreement with Ericsson allows it to distribute our products on a worldwide, non-exclusive basis with discounts based upon the volume of orders it receives. International Resellers. In order to further our international sales objectives, we have established a number of country specific value added resellers such as Alcatel. These resellers have expertise in deploying complex Internet infrastructure equipment in their respective markets and provide the first level of support required by our international customers. As of December 31, 1999, we employed 72 people in our sales support and marketing organizations. CUSTOMER SERVICE AND SUPPORT We believe that a broad range of support services is essential to the successful installation and ongoing support of our products. We have hired support engineers with proven Internet experience. We offer the following services: 24 hours a day, seven days a week technical assistance (on-line, telephone and on-site), professional services, educational services, logistics services and web-based information. We offer a variety of flexible and comprehensive support programs, including basic hardware and software warranty services, next day onsite parts and labor, 24 hours a day, seven days a week same day parts and labor and on-site resident engineers. We deliver these services directly to major end users and also utilize a two-tiered support model, leveraging the capabilities of our partners and third party organizations. We also train our partners in the delivery of education and support services. Customer service and support provide front line product support and is the problem resolution interface to our partners and direct end users. If customer service and support are unable to resolve an issue themselves, they duplicate the problem scenario and provide the failure information, such as logs, dumps, traces and system configuration to appropriate subject matter experts in our engineering department. Based on the severity of the problem and the impact to our customers' network, there are strict escalation guidelines to ensure that the appropriate technical resource and management attention is brought to bear on the problem in a timeframe commensurate with problem priority. The overall goal is to fix the problem, at the appropriate level, in the right timeframe in order to ensure our customers' satisfaction. As of December 31, 1999, we employed 31 people in our customer service and support organization, with the majority located in our Mountain View, California corporate headquarters. RESEARCH AND DEVELOPMENT We have assembled a team of skilled engineers with extensive experience in the fields of high end computing, network system design, Internet routing protocols and embedded software. These individuals have been drawn from leading computer data networking and telecommunications companies. In addition to building complex hardware and software systems, the engineering 44 47 team has experience in delivering very large, highly integrated ASICs and extremely scalable Internet software. Our research and development department is organized into teams that work in parallel on several projects in a way similar to the development of successive generations of complex microprocessors. As a result, we will seek to offer our customers next generation products as they are needed. We believe that strong product development capabilities are essential to our strategy of enhancing our core technology, developing additional applications, incorporating that technology and maintaining the competitiveness of our product and service offerings. We are leveraging our first generation ASICs, developing additional network interfaces targeted to our customer applications and continuing to develop next generation technology to support the anticipated growth in network bandwidth requirements. We continue to expand the functionality of our JUNOS Internet Software to improve performance and scalability, and to provide an enhanced user interface. Our research and development process is driven by the availability of new technology, market demand and customer feedback. We have invested significant time and resources in creating a structured process for undertaking all product development projects. This process involves all functional groups and all levels within our company. Following an assessment of market demand, our research and development team develops a full set of comprehensive functional product specifications based on inputs from the product management and sales organizations. This process is designed to provide a framework for defining and addressing the steps, tasks and activities required to bring product concepts and development projects to market. As of December 31, 1999, we employed 170 people in our research and development organization. Our research and development expenses totaled $41.5 million for the year ended December 31, 1999, $24.0 million for the year ended December 31, 1998, $9.4 million for the year ended December 31, 1997 and $1.9 million for the period from February 2, 1996, the date of our inception, to December 31, 1996. MANUFACTURING Our manufacturing operation is entirely outsourced. We have developed a strategic relationship with Solectron, under which we have subcontracted our manufacturing activity. This subcontracting activity extends from prototypes to full production and includes activities such as material procurement, final assembly, test, control and shipment to our customers. We design, specify and monitor all of the tests that are required to meet internal and external quality standards. This arrangement provides us with the following benefits: - we operate without dedicating any space to manufacturing operations; - we conserve the working capital that would be required for funding inventory; - we can adjust manufacturing volumes quickly to meet changes in demand; and - we can quickly deliver products to customers through Solectron's turnkey manufacturing and drop shipment capabilities. We have recently established a relationship with an additional third party to manufacture certain of our products. Our ASICs are manufactured by IBM using its 0.25 micron process. IBM is responsible for all aspects of the production of the ASICs using our proprietary designs. 45 48 COMPETITION Competition in the Internet infrastructure market is intense. The market historically has been dominated by Cisco Systems, Inc., with other companies such as Nortel Networks and Lucent Technologies Inc. providing products to a smaller segment of the market. In addition, a number of private companies have announced plans for new products to address the same problems which our products address. Cisco traditionally has been the dominant supplier of solutions to this market. We believe this is the result of its early leadership position in the enterprise router market. As the Internet has grown rapidly, Cisco has leveraged this position and has developed a broad product line of routers which support all major local area and wide area interfaces. We believe that our ability to compete with Cisco depends upon our ability to demonstrate that our products are superior in meeting the needs of service providers and are extremely compatible with Cisco's current and future products. Although we believe that we are currently among the top providers of Internet infrastructure solutions worldwide, we cannot assure you that we will be able to compete successfully with Cisco, currently the leading provider in this market. We expect that, over time, large companies with significant resources, technical expertise, market experience, customer relationships and broad product lines, such as Lucent and Nortel, will introduce new products which are designed to compete more effectively in this market. As a result, we expect to face increased competition in the future from larger companies with significantly more resources than we have. Although we believe that our technology and the purpose-built features of our products make them unique and will enable us to compete effectively with these companies, we cannot assure you that we will be successful. Many of our current and potential competitors, such as Cisco, Lucent and Nortel, have significantly broader product lines than we do and may bundle their products with other networking products in a manner that may discourage customers from purchasing our products. Also, many of our current and potential competitors have greater name recognition and more extensive customer bases that could be leveraged. Increased competition could result in price reduction, fewer customer orders, reduced gross margins and loss of market share, any of which could seriously harm our operating results. There are also many small private companies which claim to have products with greater capabilities than our products. Consolidation in this industry has begun, with one or more of these smaller private companies being acquired by large, established suppliers of Internet infrastructure products, and we believe it is likely to continue. As a result, we expect to face increased competition in the future from larger companies with significantly more resources than we have. Several companies also provide solutions which can substitute for some uses of routers. For example, high bandwidth asynchronous transfer mode, or ATM, switches, are used in the core of certain major backbone service providers. ATM switches can carry a variety of traffic types, including voice, video and data, using fixed, 53 byte cells. Companies that use ATM switches are enhancing their products with new software technologies such as multi-protocol label switching, or MPLS, which can potentially simplify the task of mixing routers and switches in the same network. These substitutes can reduce the need for large numbers of routers. INTELLECTUAL PROPERTY Our success and ability to compete are substantially dependent upon our internally developed technology and know how. We have two patents issued relating to high speed switching devices. These patents will expire in 2017 and 2016, respectively. In addition we have seven patent applications pending in the United States relating to the design of our products. Our engineering teams have significant expertise in ASIC design and we own all rights to the design 46 49 of the ASICs which form the core of the M40. Our JUNOS Internet Software was developed internally and is protected by United States and other copyright laws. While we rely on patent, copyright, trade secret and trademark law to protect our technology, we also believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements and reliable product maintenance are essential to establishing and maintaining a technology leadership position. There can be no assurance that others will not develop technologies that are similar or superior to our technology. Our success will depend upon our ability to obtain necessary intellectual property rights and protect our intellectual property rights. We cannot be certain that we will be able to obtain the necessary intellectual property rights or that other parties will not contest our intellectual property rights. LEGAL PROCEEDINGS We are not subject to any material legal proceedings. EMPLOYEES As of December 31, 1999, we had 335 full-time employees, 170 of whom were engaged in research and development, 72 in sales and marketing, 31 in customer support and 62 in finance, administration and operations. None of our employees are represented by a labor union. We have not experienced any work stoppages and we consider our relations with our employees to be good. Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel, none of whom is bound by an employment agreement requiring service for any defined period of time. The loss of the services of one or more of our key employees could have a material adverse effect on our business, financial condition and results of operations. Our future success also depends on our continuing ability to attract, train and retain highly qualified technical, sales and managerial personnel. Competition for such personnel is intense, and there can be no assurance that we can retain our key personnel in the future. FACILITIES We sublease approximately 60,000 square feet in two buildings located in Mountain View, California. Approximately 33,000 square feet are subleased pursuant to a sublease that expires December 31, 2001, and approximately 27,000 square feet are subleased pursuant to a lease that expires June 30, 2000. Also, we have entered into leases for approximately 144,000 and 25,000 square feet of office space in Sunnyvale, California. The lease on the office space for 144,000 square feet will commence on the later of May 1, 2000 or the completion of our improvements on the premises, and it will expire on the later of May 1, 2012 or twelve years after the completion of our improvements on the premises, with certain options for extension and expansion. The lease on the office space for 25,000 square feet has commenced on October 1, 1999, and it will expire two months after the later of May 1, 2000 or the completion of our improvements on the 144,000 square foot facility. The commercial real estate market in the San Francisco Bay area is volatile and unpredictable in terms of available space, rental fees, occupancy rates and preferred locations. We cannot be certain that additional space will be available when we require it, or that it will be affordable or in a preferred location. 47 50 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors and their ages, as of December 31, 1999, are as follows:
NAME AGE POSITION - ---- --- -------- Scott Kriens.............................. 42 President, Chief Executive Officer and Chairman of the Board Pradeep Sindhu............................ 47 Chief Technical Officer and Vice Chairman of the Board Joe Furgerson............................. 40 Vice President of Marketing Marcel Gani............................... 47 Chief Financial Officer Steven Haley.............................. 45 Vice President of Worldwide Sales and Service Gary Heidenreich.......................... 51 Vice President of Operations Peter L. Wexler........................... 44 Vice President of Engineering William R. Hearst III(1).................. 50 Director Vinod Khosla(2)........................... 44 Director C. Richard Kramlich(1).................... 64 Director William Stensrud(2)....................... 49 Director
- --------------- (1) Member of audit committee (2) Member of compensation committee SCOTT KRIENS has served as President, Chief Executive Officer and Chairman of the board of directors of Juniper Networks since October 1996. From April 1986 to January 1996, Mr. Kriens served as Vice President of Sales and Vice President of Operations at StrataCom, Inc., a telecommunications equipment company, which he co-founded in 1986. Mr. Kriens received a B.A. in Economics from California State University, Hayward. PRADEEP SINDHU co-founded Juniper Networks in February 1996 and served as Chief Executive Officer and Chairman of the board of directors until September 1996. Since then, Dr. Sindhu has served as Vice Chairman of the board of directors and Chief Technical Officer of Juniper Networks. From September 1984 to February 1991, Dr. Sindhu worked as a Member of the Research Staff, and from March 1987 to February 1996, as the Principal Scientist, and from February 1994 to February 1996, as Distinguished Engineer at the Computer Science Lab, Xerox Corporation, Palo Alto Research Center, a technology research center. Dr. Sindhu holds a B.S.E.E. from the Indian Institute of Technology in Kanpur, an M.S.E.E. from the University of Hawaii and a Masters in Computer Science and Ph.D. in Computer Science from Carnegie-Mellon University. JOE FURGERSON joined Juniper Networks in January 1997. He served as our Director of Marketing from January 1997 to September 1998 and has served as our Vice President of Marketing since September 1998. From April 1994 to December 1996, Mr. Furgerson served as Director of Product Marketing, Network Systems Division at 3Com Corporation, a data networking company. He holds a B.A. in Economics from Claremont Men's College and an M.B.A. from the Stanford Graduate School of Business. MARCEL GANI joined Juniper Networks as Chief Financial Officer in February 1997. From January 1996 to January 1997, Mr. Gani served as Vice President and Chief Financial Officer of NVIDIA Corporation, a 3D graphic processor company. Mr. Gani also held the positions of Vice President and Chief Financial Officer at Grand Junction Networks, a data networking company acquired by Cisco Systems, Inc., from March 1995 to January 1996, and at Primary Access Corporation, a data networking company acquired by 3Com Corporation, from March 1993 to March 1995. Mr. Gani holds an M.B.A. from the University of Michigan. 48 51 STEVEN HALEY joined Juniper Networks as Vice President of Worldwide Sales and Service in August 1997. Prior to joining Juniper Networks, Mr. Haley served as Vice President of Sales at Cisco Systems, Inc., a data networking company, from July 1996 to August 1997. From February 1990 to July 1996, he worked for StrataCom, Inc., serving in a variety of management roles from Managing Director, Europe to Vice President of Sales, Americas. He holds a B.S. in Marketing from the University of Massachusetts, Amherst. GARY HEIDENREICH joined Juniper Networks in July 1997 as Vice President of Operations. From August 1993 to July 1997, Mr. Heidenreich served as Vice President of Systems Manufacturing at 3Com Corporation. Mr. Heidenreich holds a B.S.I.E. from New Mexico State University and an M.B.A. from the University of Dallas. PETER L. WEXLER joined Juniper Networks as Vice President of Engineering in January 1997. From April 1995 to January 1997, Mr. Wexler served as Vice President of Engineering at Bay Networks, a data networking company. From April 1993 to April 1995, Mr. Wexler served as Director of High-End Platform Development at Wellfleet Communications, a predecessor to Bay Networks and a manufacturer of high-performance routers. He holds a B.S.E. from State University of New York at Stony Brook, an M.S.E. from the University of Illinois and an M.B.A. from Boston University. WILLIAM R. HEARST III has served as a Director of Juniper Networks since February 1996 and has served as a member of the audit committee since July 1998. Mr. Hearst is a partner with Kleiner Perkins Caufield & Byers, a venture capital firm located in Menlo Park, California. From May 1995 to August 1996, he was the Chief Executive Officer of At Home Corporation, a high speed Internet access and consumer online services company. Mr. Hearst was editor and publisher of the San Francisco Examiner, from 1984 until 1995. Mr. Hearst also serves on the boards of Excite@Home, RePlay Networks, Com21, Inc., Oblix, Inc., BigVine, Geocast, Zing, New Access Communications, the Hearst Corporation and Hearst-Argyle Television. He is a Fellow of the AAAS, a Trustee of Carnegie Institution in Washington, D.C. and a Trustee of the California Academy of Sciences. Mr. Hearst is a 1972 graduate of Harvard University, holding an A.B. degree in Mathematics. VINOD KHOSLA has served a Director of Juniper Networks since February 1996 and has served as a member of the compensation committee since July 1998. Mr. Khosla has been a General Partner with the venture capital firm of Kleiner Perkins Caufield & Byers from February 1986 to the present. Mr. Khosla was a co-founder of Daisy Systems Corporation, an electronic design automation company, and the founding Chief Executive Officer of Sun Microsystems, Inc., a computer and data networking company. Mr. Khosla also serves on the boards of Asera, Concentric Network Corporation, Corio Inc., Corvis Corporation, Siara Systems and QWEST Communications International Inc., as well as several other private companies. Mr. Khosla holds a B.S.E.E. from the Indian Institute of Technology in New Delhi, an M.S.E. from Carnegie-Mellon University, and an M.B.A. from the Stanford Graduate School of Business. C. RICHARD KRAMLICH has served as a Director of Juniper Networks since July 1996 and has been a member of the audit committee since July 1998. Mr. Kramlich is the co-founder and has been a General Partner of New Enterprise Associates, L.P., a venture capital fund, since 1978. He is a director of Zhone Technologies, Force 10 Networks, Financial Engines, InfoGear, Netsolve, Verticom, Visual EDGE, Healtheon Corporation, Com 21, Inc., Lumisys, Inc. and Silicon Graphics, Inc. Mr. Kramlich holds a B.S. from Northwestern University and an M.B.A. from Harvard Business School. WILLIAM STENSRUD has served as a Director of Juniper Networks since October 1996 and has served as a member of the compensation committee since July 1998. Mr. Stensrud has been a General Partner with the venture capital firm of Enterprise Partners from January 1997 to the present. Mr. Stensrud was an independent investor and turn-around executive from March 1996 to January 1997. During this period Mr. Stensrud served as President at Paradyne Corporation 49 52 and as a director of Paradyne Corporation, GlobeSpan Corporation and Paradyne Partners LLP, all data networking companies. From January 1992 to July 1995, Mr. Stensrud served as President and Chief Executive Officer of Primary Access Corporation, a data networking company acquired by 3Com Corporation. From the acquisition through March 1996, Mr. Stensrud served as an executive at 3Com Corporation. From 1986 to 1992, Mr. Stensrud served as the Marketing Vice President of StrataCom, Inc., a telecommunications equipment company, which Mr. Stensrud co-founded. Mr. Stensrud also serves on the boards of Rhythms NetConnections Corporation, Paradyne Corporation, Packeteer Corporation, Airfiber, Asian Trading.com, Chromisys, Edupoint, Ensemble Communications, iAsia Works, LongBoard, Reflex Communications and Solis Micro Technologies. He holds a B.S. degree in Electrical Engineering and Computer Science from Massachusetts Institute of Technology. BOARD OF DIRECTORS Our board of directors currently consists of six authorized members. The board is divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms. The Class I Directors, currently Messrs. Kriens and Stensrud, will stand for re-election at the 2000 annual meeting of stockholders. The Class II Directors, currently Messrs. Khosla and Sindhu, will stand for re-election at the 2001 annual meeting of stockholders and the Class III Directors, currently Messrs. Hearst and Kramlich, will stand for re-election at the 2002 annual meeting of stockholders. This classification of the board of directors may delay or prevent a change in control of our company or in our management. See "Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions." Executive officers are appointed by the board of directors on an annual basis and serve until their successors have been elected and qualified. There are no family relationships among any of our directors, officers or key employees. BOARD COMMITTEES We established an audit committee and a compensation committee in July 1998. The audit committee consists of Messrs. Hearst and Kramlich. The audit committee reviews our internal accounting procedures and consults with and reviews the services provided by our independent auditors. The compensation committee consists of Messrs. Khosla and Stensrud. The compensation committee reviews and recommends to the board of directors the compensation of all of our officers and directors, including stock compensation and loans and establishes and reviews general policies relating to the compensation and benefits of our employees. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to establishing the compensation committee, the board of directors as a whole performed the functions delegated to the compensation committee. No member of the board of directors or the compensation committee serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. DIRECTOR COMPENSATION We do not currently compensate in cash our directors for their service as members of the board of directors, although they are reimbursed for certain expenses in connection with attendance at board of director and compensation committee meetings. Under our 1996 Stock Plan, nonemployee directors are eligible to receive stock option grants at the discretion of the board of directors or other administrator of the plan. 50 53 LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for: - any breach of their duty of loyalty to the corporation or its stockholders; - acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - unlawful payments of dividends or unlawful stock repurchases or redemptions; or - any transaction from which the director derived an improper personal benefit. The limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in their capacity as an officer, director, employee or other agent, regardless of whether the bylaws would permit indemnification. We have entered into agreements to indemnify our directors, executive officers and certain other employees, in addition to the indemnification provided for in our bylaws. These agreements, among other things, provide for indemnification for judgments, fines, settlement amounts and certain expenses, including attorneys' fees incurred by in any action or proceeding, including any action by or in the right of Juniper Networks, arising out of the person's services as a director, executive officer or employee of us, any of our subsidiaries or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons for those positions. The limited liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty and may reduce the likelihood of derivative litigation against our directors and officers, even though a derivative action, if successful, might otherwise benefit us and our stockholders. A stockholder's investment in us may be adversely affected to the extent we pay the costs of settlement or damage awards under these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. 51 54 EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth the compensation earned, awarded or paid for services rendered to us in all capacities for the fiscal year ended December 31, 1999, by our Chief Executive Officer and our four next most highly compensated executive officers who earned more than $100,000 in salary and bonus during the fiscal year ended December 31, 1999, whom we refer to in this prospectus collectively as the named executive officers: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS -------------------- ------------ SECURITIES UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS(1) COMPENSATION - ---------------------------- ---- --------- -------- ------------ ------------ Scott Kriens....................... 1999 $170,000 $ 5,000 900,000 $ --(2) President and 1998 170,000 -- 3,735 1,200 Chief Executive Officer 1997 170,000 -- -- -- Steven Haley....................... 1999 $175,000 $ -- 465,000 $284,203(3) Vice President of 1998 150,000 69,039 114,390 1,133(2) Worldwide Sales and Service 1997 62,109 -- -- -- Pradeep Sindhu..................... 1999 $145,000 $12,425 540,000 $ --(2) Chief Technical Officer 1998 140,225 25,000 5,355 1,004 1997 114,000 -- -- -- Peter Wexler....................... 1999 $150,000 $ 6,000 240,000 $ --(2) Vice President of Engineering 1998 150,000 -- 3,060 1,133 1997 137,500 -- -- -- Marcel Gani........................ 1999 $150,000 $12,500 240,000 $ --(2) Chief Financial Officer 1998 150,000 -- 2,745 1,133 1997 131,250 -- -- --
- --------------- (1) The underlying share amounts have been adjusted for the three-for-one split of our common stock for stockholders of record on December 31, 1999 and paid on January 14, 2000. (2) Consists of premiums paid by us for term life insurance. (3) Consists of commissions. Option Grants in Last Fiscal Year. The following table shows certain information regarding stock options granted to the named executive officers during the fiscal year ended December 31, 1999. All of these stock options were granted under our 1996 Stock Plan. The material terms of these option grants are as follows: (a) nonqualified stock options except as noted below; (b)granted at fair market value at the time of grant; (c) vest as noted below; and (d) a term of ten years, subject to earlier termination in the event the optionee ceases to be employed by us. See "Certain Transactions" for a description of the exercises of stock options granted to the named executive officers under the 1996 Stock Plan. In accordance with the rules of the Securities and Exchange Commission, also shown below is the potential realizable value over the term of the option, the period from the grant date to the expiration date, based on assumed rates of stock appreciation of 5% and 10%, compounded annually. These amounts are based on certain assumed rates of appreciation and do not represent our estimate of our future stock price. Actual gains, if any, on stock option exercises will be dependent on the future performance of the common stock. 52 55 OPTION GRANTS IN LAST FISCAL YEAR
PERCENT OF POTENTIAL REALIZABLE VALUE AT NUMBER OF TOTAL OPTIONS ASSUMED ANNUAL RATES OF SECURITIES GRANTED EXERCISE STOCK APPRECIATION FOR OPTION UNDERLYING TO EMPLOYEES PRICE TERM(3) OPTIONS DURING PER EXPIRATION ------------------------------ NAME GRANTED PERIOD(1) SHARE(2) DATE 5% 10% - ---- ---------- ------------- -------- ---------- -------------- -------------- Scott Kriens............ 900,000(4) 5.387% $60.71 10/4/09 $34,361,211 $87,078,055 Steven Haley............ 30,303(5) 0.181 3.30 2/10/09 62,889 159,374 119,697(5) 0.716 3.30 2/10/09 248,413 629,528 315,000(6) 1.886 60.71 10/4/09 12,026,424 30,477,320 Pradeep Sindhu.......... 540,000(4) 3.232 60.71 10/4/09 20,616,727 52,246,834 Peter Wexler............ 240,000(7) 1.436 60.71 10/4/09 9,162,990 23,220,815 Marcel Gani............. 240,000(7) 1.436 60.71 10/4/09 9,162,990 23,220,815
- --------------- (1) Based on an aggregate of 16,837,006 options granted by us during the fiscal year ended December 31, 1999, to our employees, directors and consultants, including the named executive officers. All of the option grant numbers and per share numbers have been adjusted for the three-for-one split of our common stock for stockholders of record on December 31, 1999. (2) Options were granted at an exercise price equal to the fair market value of our common stock, as determined in good faith by our board of directors. As of the effective date of the initial public offering, options are granted at fair market value on the date of grant. (3) The potential realizable value is calculated based on the ten year term of the option at its time of grant. It is calculated based on the assumption that the closing price for the common stock on the date of grant appreciates at the indicated annual rate compounded annually for the entire term of the option and that the option is exercised and sold on the last day of its term for the appreciated stock price. (4) The option grants to Mr. Kriens and Mr. Sindhu vest in 36 equal monthly installments beginning January 1, 2000. (5) The option grant for 30,303 shares is an incentive stock option. The option grant for 119,697 shares is a non-statutory stock option. (6) The option grant for 315,000 shares has a staggered vesting schedule. The option to purchase 195,000 of the shares vests in 12 equal monthly installments beginning January 1, 2001. The option to purchase 120,000 shares vests in 12 equal monthly installments beginning January 1, 2002. (7) The option grants to Mr. Wexler and Mr. Gani vest in 24 monthly installments beginning January 1, 2001. 53 56 Aggregate Option Exercises and Option Values. The following table sets forth information with respect to the named executive officers concerning option exercises for the fiscal year ended December 31, 1999, and exercisable and unexercisable options held as of December 31, 1999: OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES VALUE DECEMBER 31, 1999 DECEMBER 31, 1999(2) ACQUIRED ON REALIZED --------------------------- --------------------------- NAME EXERCISE (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- -------- ----------- ------------- ----------- ------------- Scott Kriens......... -- $ -- -- 900,000 $ -- $47,362,500 Steven Haley......... 30,465 204,792 112,500 465,000 12,718,744 33,546,870 Pradeep Sindhu....... 5,355 22,015 -- 540,000 -- 28,417,500 Marcel Gani.......... -- -- -- 240,000 -- 12,630,000 Peter Wexler......... -- -- 3,060 240,000 345,100 12,630,000
- --------------- (1) Based on the fair market value of our stock on the date of exercise, minus the exercise price, multiplied by the number of shares issued upon exercise of the option. (2) The value of in-the-money options is based on the closing price on December 31, 1999 of $113.333 per share, minus the per share exercise price, multiplied by the number of shares underlying the option. EMPLOYMENT AGREEMENTS We entered into a change of control agreement with Mr. Kriens on October 1, 1996, which provides that he will be entitled to base compensation and benefit payments for a period of three months, in the event that his employment is terminated in connection with a change of control of Juniper Networks. Further, Mr. Kriens' restricted stock would be released from any repurchase option and his stock options would become vested and exercisable as to an additional amount equal to that amount which would have vested and become exercisable had Mr. Kriens remained employed for a period of 18 months following the change of control. If his employment continues following a change of control, his stock options will be vested and exercisable at a rate 1.5 times the rate otherwise set forth in the stock option agreement for a period of twelve months following the change of control. Under the employment agreement, Mr. Kriens is entitled to receive three months' base compensation and benefits, regardless of whether there is a change of control, in the event that his employment is involuntarily terminated. Upon involuntary termination, and regardless of whether there has been a change of control, Mr. Kriens' restricted stock and stock options would become immediately vested and exercisable as to an additional amount equal to the number of stock options which would have become vested and exercisable during the three-month period following the involuntary termination had Mr. Kriens remained employed with us. We entered into a change of control agreement with Mr. Gani in February 1997, which provides that he will be entitled to receive base compensation and benefits for a period of three months, in the event of involuntary termination. In the event of a change of control at Juniper Networks, the vesting of Mr. Gani's stock options will accelerate as to that number of options equal to the number of shares that would vest over the next 30 months in accordance with our standard vesting schedule or the balance of his unvested stock, whichever amount is less. 54 57 CERTAIN TRANSACTIONS During our last fiscal year ending December 31, 1999, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are to be a party in which the amount involved exceeds $60,000, and in which any director, executive officer, holder of more than 5% of our common stock or any member of the immediate family of any of these people had or will have a direct or indirect material interest other than compensation agreements and other arrangements, which are described where required in "Management," and the transactions described below. TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS Common Stock. On February 26, 1996, we issued 2,250,000 shares of common stock at a price of $0.044 per share to Mr. Sindhu, one of our founders, executive officers and directors. On June 11, 1996, we issued the following shares of common stock at a price of $0.044 per share to the following purchasers, among others:
SHARES OF PURCHASER COMMON STOCK - --------- ------------ Kleiner, Perkins, Caufield & Byers VII...................... 5,493,749 KPCB VII Founders Fund...................................... 600,001 KPCB Information Sciences Zaibatsu Fund II.................. 156,249
Kleiner, Perkins, Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information Sciences Zaibatsu Fund II are affiliated entities and together are considered a holder of more than 5% of our common stock. Messrs. Khosla and Hearst, two of our directors, are general partners of Kleiner, Perkins, Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information Sciences Zaibatsu Fund II. Messrs. Khosla and Hearst disclaim beneficial ownership of the securities held by such entities, except for their proportional interests in the entities. Series A Preferred Stock. On June 11, 1996, we sold 1,743,751 shares of our Series A Preferred Stock for $1.00 per share. Each share of Series A Preferred Stock converted into 2.25 shares of common stock at the time of the initial public offering. The purchasers of the Series A Preferred Stock included, among others:
AS CONVERTED SHARES OF SHARES OF PURCHASER SERIES A STOCK COMMON STOCK - --------- -------------- ------------ Kleiner, Perkins, Caufield & Byers VII............... 1,513,834 3,406,127 KPCB VII Founders Fund............................... 165,333 371,999 KPCB Information Sciences Zaibatsu Fund II........... 43,056 96,876
55 58 Series B Preferred Stock. On August 5, 1996, November 8, 1996, and December 30, 1996, we sold a total of 3,333,334 shares, 484,683 shares, and 3,958 shares, respectively, of our Series B Preferred Stock for $2.40 per share. In addition, on December 16, 1996, and June 18, 1997, we granted warrants exercisable for 83,333 shares and 10,000 shares, respectively, of our Series B Preferred Stock at an exercise price of $2.40. Each share of Series B Preferred Stock converted into 2.25 shares of common stock at the time of the initial public offering. The purchasers of the Series B Preferred Stock included, among others:
AS CONVERTED SHARES OF SHARES OF PURCHASER SERIES B STOCK COMMON STOCK - --------- -------------- ------------ Kleiner, Perkins, Caufield & Byers VII............... 304,688 685,548 KPCB Information Sciences Zaibatsu Fund II........... 7,812 17,577 New Enterprise Associates VI, Limited Partnership.... 1,214,583 2,732,812 NEA Presidents Fund, L.P............................. 31,250 70,313 NEA Ventures 1996, L.P............................... 4,167 9,376 Kriens 1996 Trust U/T/A October 29, 1996............. 364,683 820,537 Stensrud Family Trust U/T/A September 6, 1993........ 120,000 270,000
New Enterprise Associates VI, Limited Partnership and NEA Presidents Fund, L.P. and NEA Ventures 1996, L.P. are affiliated entities and together are considered a holder of more than 5% of our common stock. Mr. Kramlich, one of our directors, is a partner of New Enterprise Associates VI, Limited Partnership and NEA Presidents Fund, L.P. and NEA Ventures 1996, L.P. Mr. Kramlich disclaims beneficial ownership of the securities held by these entities, except for his proportional interest in the entities. Mr. Kriens, one of our directors and executive officers and a holder of more than 5% of our common stock, is a trustee of the Kriens 1996 Trust U/T/A October 29, 1996. Mr. Stensrud, one of our directors, is a trustee of the Stensrud Family Trust U/T/A September 16, 1993. Series C Preferred Stock. On July 1, 1997, and September 30, 1997, we sold 4,479,286 shares and 671,892 shares, respectively, of our Series C Preferred Stock for $8.93 per share. Each share of Series C Preferred Stock converted into 2.25 shares of common stock at the time of the initial public offering. The sale of Series C Preferred Stock included, among others, the sale of 783,875 shares of Series C Preferred Stock (1,763,718 shares as converted to common stock) to Ericsson Business Networks AB, which is a holder of more than 5% of our common stock. Series D and D-1 Preferred Stock. On March 16, 1999, we sold 500,000 shares of our Series D Preferred Stock and 2,580,000 shares of our Series D-1 Preferred Stock for $11.03 per share to Ericsson Business Networks AB. Each share of Series D Preferred Stock converted into one share of common stock at the time of the initial public offering. Each share of D-1 Preferred Stock converted into 0.38166 shares of common stock at the time of the initial public offering. INDEMNIFICATION We have entered into indemnification agreements with each of our directors and officers. These indemnification agreements will require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. All future transactions, including any loans from us to our officers, directors, principal stockholders or affiliates, will be approved by a majority of the board of directors, including a majority of the independent and disinterested members of the board of directors or, if required by law, a majority of disinterested stockholders, and will be on terms no less favorable to us than could be obtained from unaffiliated third parties. 56 59 PRINCIPAL STOCKHOLDERS The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of December 31, 1999: - each stockholder known by us to own beneficially more than 5% of our common stock, as explained below; - each of the named executive officers; - each of our directors; and - all of our directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days after December 31, 1999, are deemed outstanding, while the shares are not deemed outstanding for purposes of computing percentage ownership of any other person. Unless otherwise indicated in the footnotes below, the persons and entities named in the table have sole voting or investment power with respect to all shares beneficially owned, subject to community property laws where applicable. 57 60 The number and percentage of shares beneficially owned are based on the aggregate of 155,938,599 shares of common stock outstanding as of December 31, 1999. All share amounts have been adjusted for the three-for-one split of our common stock to stockholders of record on December 31, 1999.
SHARES OF COMMON STOCK BENEFICIALLY OWNED ------------------------ NUMBER PERCENTAGE ---------- ---------- OFFICERS AND DIRECTORS(1): Scott Kriens(2)............................................. 9,485,455 6.1% Steven Haley(3)............................................. 1,164,393 * Pradeep Sindhu(4)........................................... 6,770,355 4.3% Peter Wexler(5)............................................. 2,028,060 1.3% Marcel Gani(6).............................................. 1,251,495 * William Hearst(7)........................................... 32,709,372 21.0% c/o Kleiner Perkins Caufield & Byers 2750 Sand Hill Road, Menlo Park, CA 94025 Vinod Khosla(8)............................................. 32,709,372 21.0% c/o Kleiner Perkins, Caufield & Byers 2750 Sand Hill Road, Menlo Park, CA 94025 C. Richard Kramlich(9)...................................... 5,812,311 3.7% c/o New Enterprise Associates 2490 Sand Hill Road, Menlo Park, CA 94025 William R. Stensrud(10)..................................... 945,000 * c/o Enterprise Partners 7979 Ivanhoe Ave., Suite 550, La Jolla, CA 92037 All directors and executive officers as a group (11 persons)(11).............................................. 62,444,026 40.0% 5% STOCKHOLDERS: Kleiner Perkins Caufield & Byers............................ 32,709,372 21.0% 2750 Sand Hill Road, Menlo Park, CA 94025(12) Ericsson Business Networks AB............................... 9,745,203 6.3% S-131 89 Stockholm, Sweden
- --------------- * Less than 1% of the outstanding shares of common stock. (1) Unless otherwise indicated, the address of each listed stockholder is c/o Juniper Networks, Inc., 385 Ravendale Drive, Mountain View, California 94043. (2) Includes 9,460,455 shares held in the name of the Kriens 1996 Trust, of which Mr. Kriens and his spouse are trustees, of which 1,621,377 shares are subject to our right of repurchase, as of December 31, 1999, which lapses over time and 25,000 shares subject to options which are currently exercisable or will become exercisable within 60 days of December 31, 1999. (3) Includes 60,000 shares held in the name of the Haley Family Foundation Trust and an aggregate of 90,000 shares held in trust for the benefit of Mr. Haley's children. Includes 421,875 shares subject to our right of repurchase as of December 31, 1999 (which lapses over time) and 119,538 shares, subject to options which are currently exercisable or will become exercisable within 60 days of December 31, 1999. (4) Includes 281,250 shares subject to our right of repurchase, as of December 31, 1999 (which lapses over time) and 15,000 shares subject to options which are currently exercisable or will be come exercisable within 60 days of December 31, 1999. Includes an aggregate of 180,000 shares held in custody for Mr. Sindhu's children pursuant to the California Uniform Transfer to Minors Act. 58 61 (5) Includes 590,625 shares subject to our right of repurchase, as of December 31, 1999 (which lapses over time) and 3,060 shares subject to options which are currently exercisable or will become exercisable within 60 days of December 31, 1999. (6) Includes 1,251,495 shares held in the name of the Gani 1995 Trust dated December 8, 1995, of which Mr. Gani and his spouse are trustees and of which 442,969 shares are subject to our right of repurchase, as of December 31, 1999 (which lapses over time). (7) Comprised of 32,709,372 shares held by entities affiliated with Kleiner Perkins Caufield & Byers. Mr. Hearst is a general partner of Kleiner Perkins Caufield & Byers and is a director of Juniper Networks. Mr. Hearst disclaims beneficial ownership of shares held by those entities, except to the extent of his proportional interest arising from his partnership interest in Kleiner Perkins Caufield & Byers. (8) Comprised of 32,709,372 shares held by entities affiliated with Kleiner Perkins Caufield & Byers. Mr. Khosla is a general partner of Kleiner Perkins Caufield & Byers and is a director of Juniper Networks. Mr. Khosla disclaims beneficial ownership of shares held by those entities, except to the extent of his proportional interest arising from his partnership interest in Kleiner Perkins Caufield & Byers. (9) Includes 5,737,500 shares held by entities affiliated with New Enterprise Associates. Mr. Kramlich is a general partner of New Enterprise Associates and is a director of Juniper Networks. Mr. Kramlich disclaims beneficial ownership of shares held by those entities, except to the extent of his proportional interest in New Enterprise Associates. (10) Includes 810,000 shares held in the name of the Stensrud Family Trust U/T/A September 16, 1993, as community property. (11) Includes all shares referenced in notes 3 through 10 above, except that the shares beneficially owned by Messrs. Hearst and Khosla are counted only once in this calculation. Also includes 2,148,750 shares beneficially owned by two other executive officers of which 738,048 shares are subject to our right of repurchase as of December 31, 1999 (which lapses over time) and 128,475 shares subject to options which are exercisable or will become exercisable within 60 days of December 31, 1999. (12) Includes (i) 31,672,266 shares held by Kleiner Perkins Caufield & Byers VII, (ii) 812,106 shares held by KPCB Information Sciences Zaibatsu Fund II, and (iii) 225,000 shares held by KPCB IX Associates, LLC. 59 62 DESCRIPTION OF CONVERTIBLE NOTES The convertible notes will be issued under an indenture between us and Norwest Bank Minnesota, National Association, as trustee, substantially in the form filed as an exhibit to the registration statement of which this prospectus forms a part. The indenture and the convertible notes are governed by New York law. Because this section is a summary, it does not describe every aspect of the convertible notes and the indenture. The following summaries of certain provisions of the indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, the detailed provision of the convertible notes and the indenture, including the definitions therein of certain terms. GENERAL The convertible notes will be general, unsecured obligations of ours. The convertible notes will be subordinated, which means that they will rank behind certain of our indebtedness as described below. The convertible notes will be limited to $500,000,000 aggregate principal amount or $575,000,000 if the underwriters exercise in full their right to purchase additional convertible notes. We are required to repay the principal amount of the convertible notes in full on March 15, 2007. The convertible notes will bear interest at the rate per annum shown on the front cover of this prospectus from , 2000. We will pay interest on the convertible notes on March 15 and September 15 of each year, commencing on September 15, 2000. Interest payable per $1,000 principal amount of convertible notes for the period from , 2000 to , 2000 will be $ . You may convert the convertible notes into shares of our common stock initially at the conversion rate stated on the front cover of this prospectus at any time before the close of business on March 15, 2007, unless the convertible notes have been previously redeemed or repurchased. Holders of convertible notes called for redemption or submitted for repurchase will be entitled to convert the convertible notes up to and including the business day immediately preceding the date fixed for redemption or repurchase, as the case may be. The conversion rate may be adjusted as described below. We may redeem the convertible notes at our option at any time on or after the third business day after March 15, 2003, in whole or in part, at the redemption prices set forth below under "-- Optional Redemption by Juniper," plus accrued and unpaid interest to the redemption date. If there is a change in control of us, you will have the right to require us to repurchase your convertible notes as described below under "-- Repurchase at Option of Holders Upon a Change in Control." FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES The convertible notes will be issued: - only in fully registered form; - without interest coupons; and - in denominations of $1,000 and greater multiples. The convertible notes will be evidenced by one or more global convertible notes which will be deposited with the trustee as custodian for DTC and registered in the name of Cede & Co., as nominee of DTC. Except as set forth below, record ownership of the global note may be transferred, in whole or in part, only to another nominee of DTC or to a successor of DTC or its nominee. 60 63 The global note will not be registered in the name of any person, or exchanged for convertible notes that are registered in the name of any person, other than DTC or its nominee unless either of the following occurs: - DTC notifies us that it is unwilling, unable or no longer qualified to continue acting as the depositary for the global note; or - an event of default with respect to the convertible notes represented by the global note has occurred and is continuing. In those circumstances, DTC will determine in whose names any securities issued in exchange for the global note will be registered. DTC or its nominee will be considered the sole owner and holder of the global note for all purposes, and as a result: - you cannot get convertible notes registered in your name if they are represented by the global note; - you cannot receive physical certificated convertible notes in exchange for your beneficial interest in the global convertible notes; - you will not be considered to be the owner or holder of the global note or any note it represents for any purpose; and - all payments on the global note will be made to DTC or its nominee. The laws of some jurisdictions require that certain kinds of purchasers can only own securities in definitive, certificated form. These laws may limit your ability to transfer your beneficial interests in the global note to these types of purchasers. Only institutions, such as a securities broker or dealer, that have accounts with DTC or its nominee (called participants) and persons that may hold beneficial interests through participants can own a beneficial interest in the global note. The only place where the ownership of beneficial interests in the global note will appear and the only way the transfer of those interests can be made will be on the records kept by DTC (for their participants' interests) and the records kept by those participants (for interests of persons held by participants on their behalf). Secondary trading in bonds and convertible notes of corporate issuers is generally settled in clearinghouse (that is, next-day) funds. In contrast, beneficial interests in a global note usually trade in DTC's same-day funds settlement system, and settle in immediately available funds. We make no representations as to the effect that settlement in immediately available funds will have on trading activity in those beneficial interests. We will make cash payments of interest on and principal of and the redemption or repurchase price of the global note to Cede, the nominee for DTC, as the registered owner of the global note. We will make these payments by wire transfer of immediately available funds on each payment date. We have been informed that DTC's practice is to credit participants' accounts on the payment date with payments in amounts proportionate to their respective beneficial interests in the convertible notes represented by the global note as shown on DTC's records, unless DTC has reason to believe that it will not receive payment on that payment date. Payments by participants to owners of beneficial interests in convertible notes represented by the global note held through participants will be the responsibility of those participants, as is now the case with securities held for the accounts of customers registered in street name. We will send any redemption notices to Cede. We understand that if less than all the convertible notes are being redeemed, DTC's practice is to determine by lot the amount of the holdings of each participant to be redeemed. 61 64 We also understand that neither DTC nor Cede will consent or vote with respect to the convertible notes. We have been advised that under its usual procedures, DTC will mail an omnibus proxy to us as soon as possible after the record date. The omnibus proxy assigns Cede's consenting or voting rights to those participants to whose accounts the convertible notes are credited on the record date identified in a listing attached to the omnibus proxy. Because DTC can only act on behalf of participants, who in turn act on behalf of indirect participants, the ability of a person having a beneficial interest in the principal amount represented by the global note to pledge the interest to persons or entities that do not participate in the DTC book-entry system, or otherwise take actions in respect of that interest, may be affected by the lack of a physical certificate evidencing its interest. DTC has advised us that it will take any action permitted to be taken by a holder of convertible notes, including the presentation of convertible notes for exchange, only at the direction of one or more participants to whose account with DTC interests in the global note are credited and only in respect of such portion of the principal amount of the convertible notes represented by the global note as to which such participant or participants has or have given such direction. DTC has also advised us as follows: - DTC is a: - limited purpose trust company organized under the laws of the State of New York, - member of the Federal Reserve System, - clearing corporation within the meaning of the Uniform Commercial Code, as amended, and - clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. - DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants. - Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations. - Certain participants, or their representatives, together with other entities, own DTC. - Indirect access to the DTC System is available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. The policies and procedures of DTC, which may change periodically, will apply to payments, transfers, exchanges and other matters relating to beneficial interests in the global note. We and the trustee have no responsibility or liability for any aspect of DTC's or any participants' records relating to beneficial interests in the global note, including for payments made on the global note. Further, we and the trustee are not responsible for maintaining, supervising or reviewing any of those records. CONVERSION RIGHTS You have the option to convert any portion of the principal amount of any note that is an integral multiple of $1,000 into shares of our common stock at any time on or prior to the close of business on the maturity date. The conversion rate will be equal to the number of shares per $1,000 principal amount of convertible notes shown on the cover page of this prospectus. The conversion rate is equivalent to a conversion price of approximately $ . Your right to convert a convertible note called for redemption or delivered for repurchase will terminate at the 62 65 close of business on the business day immediately preceding the redemption date or repurchase date for that note, unless we default in making the payment due upon redemption or repurchase. You may convert all or part of any convertible note by delivering the convertible note at the Corporate Trust Office of the trustee in the Borough of Manhattan, the city of New York, accompanied by a duly signed and completed conversion notice, a copy of which may be obtained by the trustee. The conversion date will be the date on which the convertible note and the duly signed and completed conversion notice are so delivered. As promptly as practicable on or after the conversion date, we will issue and deliver to the trustee a certificate or certificates for the number of full shares of our common stock issuable upon conversion, together with payment in lieu of any fraction of a share. The certificate will then be sent by the trustee to the conversion agent for delivery to the holder. The shares of our common stock issuable upon conversion of the convertible notes will be fully paid and nonassessable and will rank equally with the other shares of our common stock. If you surrender a convertible note for conversion on a date that is not an interest payment date, you will not be entitled to receive any interest for the period from the next preceding interest payment date to the conversion date, except as described below in this paragraph. Any note surrendered for conversion during the period from the close of business on any regular record date to the opening of business on the next succeeding interest payment date (except convertible notes, or portions thereof, called for redemption on a redemption date or to be repurchased on a repurchase date for which the right to convert would terminate during such period) must be accompanied by payment of an amount equal to the interest payable on such interest payment date on the principal amount of convertible notes being surrendered for conversion. In the case of any note which has been converted after any regular record date but before the next succeeding interest payment date, interest payable on such interest payment date shall be payable on such interest payment date notwithstanding such conversion, and such interest shall be paid to the holder of such note on such regular record date. No other payment or adjustment for interest, or for any dividends in respect of our common stock, will be made upon conversion. Holders of our common stock issued upon conversion will not be entitled to receive any dividends payable to holders of our common stock as of any record time or date before the close of business on the conversion date. We will not issue fractional shares upon conversion. Instead, we will pay cash based on the market price of our common stock at the close of business on the conversion date. You will not be required to pay any taxes or duties relating to the issue or delivery of our common stock on conversion but you will be required to pay any tax or duty relating to any transfer involved in the issue or delivery of our common stock in a name other than yours. Certificates representing shares of our common stock will not be issued or delivered unless all taxes and duties, if any, payable by you have been paid. The conversion rate will be subject to adjustment for, among other things: - dividends and other distributions payable in our common stock on shares of our capital stock, - the issuance to all holders of our common stock of rights, options or warrants entitling them to subscribe for or purchase our common stock at less than the then current market price of such common stock as of the record date for shareholders entitled to receive such rights, options or warrants, - subdivisions, combinations and reclassifications of our common stock, 63 66 - distributions to all holders of our common stock of evidences of our indebtedness, shares of capital stock, cash or assets, including securities, but excluding: - those dividends, rights, options, warrants and distributions referred to above, - dividends and distributions paid exclusively in cash, and - distributions upon mergers or consolidations discussed below, - distributions consisting exclusively of cash, excluding any cash portion of distributions referred to in the bullet point immediately above, or cash distributed upon a merger or consolidation to which the next succeeding bullet point applies, to all holders of our common stock in an aggregate amount that, combined together with: - other all-cash distributions made within the preceding 365-day period in respect of which no adjustment has been made, and - any cash and the fair market value of other consideration payable in connection with any tender offer by us or any of our subsidiaries for our common stock concluded within the preceding 365-day period in respect of which no adjustment has been made, exceeds 10% of our market capitalization, being the product of the current market price per share of the common stock on the record date for such distribution and the number of shares of common stock then outstanding, and - the successful completion of a tender offer made by us or any of our subsidiaries for our common stock which involves an aggregate consideration that, together with: - any cash and other consideration payable in a tender offer by us or any of our subsidiaries for our common stock expiring within the 365-day period preceding the expiration of that tender offer in respect of which no adjustment has been made, and - the aggregate amount of any all cash distributions referred to in the immediately preceding bullet point above to all holders of our common stock within the 365-day period preceding the expiration of that tender offer in respect of which no adjustments have been made, exceeds 10% of our market capitalization on the expiration of such tender offer. We reserve the right to effect such increases in the conversion rate in addition to those required by the foregoing provisions as we consider to be advisable in order that any event treated for United States federal income tax purposes as a dividend of stock or stock rights will not be taxable to the recipients. We will not be required to make any adjustment to the conversion rate until the cumulative adjustments amount to 1.0% or more of the conversion rate. We will compute all adjustments to the conversion rate and will give notice by mail to holders of the registered convertible notes of any adjustments. In any case in which we consolidate or merge with or into another entity or in which another entity is merged into us, or in case of any sale or transfer of all or substantially all of our assets, each note then outstanding will become convertible only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of common stock into which the convertible notes were convertible immediately prior to the consolidation or merger or sale or transfer. The preceding sentence will not apply to a merger which does not result in any reclassification, conversion, exchange or cancellation of the common stock. We may increase the conversion rate for any period of at least 20 days, upon at least 15 days notice, if our board of directors determines that the increase would be in our best interest. The board of directors' determination in this regard will be conclusive. We will give 64 67 holders of convertible notes at least 15 days' notice of such an increase in the conversion rate. Any increase, however, will not be taken into account for purposes of determining whether the closing price of our common stock exceeds the conversion price by 105% in connection with an event which otherwise would be a change in control as defined below. If at any time we make a distribution of property to our stockholders that would be taxable to such stockholders as a dividend for United States federal income tax purposes, such as distributions of evidences of indebtedness or assets by us, but generally not stock dividends on common stock or rights to subscribe for common stock, and, pursuant to the anti-dilution provisions of the indenture, the number of shares into which convertible notes are convertible is increased, that increase may be deemed for United States federal income tax purposes to be the payment of a taxable dividend to holders of convertible notes. See "Certain United States Federal Income and Estate Tax Consequences -- U.S. Holders." SUBORDINATION The convertible notes are subordinated and, as a result, the payment of the principal, any premium and interest on the convertible notes, including amounts payable on any redemption or repurchase, will be subordinated to the prior payment in full, in cash or other payment satisfactory to holders of senior debt, of all of our senior debt. The convertible notes are also effectively subordinated to any debt or other liabilities of our subsidiaries. Senior debt is defined in the indenture to mean: the principal of, and premium, if any, and interest, including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding, on, and all fees and other amounts payable in connection with, the following, whether absolute or contingent, secured or unsecured, due or to become due, outstanding on the date of the indenture or thereafter created, incurred or assumed: - our indebtedness evidenced by a credit or loan agreement, note, bond, debenture or other written obligation, - all of our obligations for money borrowed, - all of our obligations evidenced by a note or similar instrument given in connection with the acquisition of any businesses, properties or assets of any kind, - our obligations: - as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles, or - as lessee under other leases for facilities, capital equipment or related assets, whether or not capitalized, entered into or leased for financing purposes, - all of our obligations under interest rate and currency swaps, caps, floors, collars, hedge agreements, forward contracts or similar agreements or arrangements, - all of our obligations with respect to letters of credit, bankers' acceptances and similar facilities, including reimbursement obligations with respect to the foregoing, - all of our obligations issued or assumed as the deferred purchase price of property or services, but excluding trade accounts payable and accrued liabilities arising in the ordinary course of business, - all obligations of the type referred to in the above clauses of another person and all dividends of another person, the payment of which, in either case, we have assumed or guaranteed, or for which we are responsible or liable, directly or indirectly, jointly or 65 68 severally, as obligor, guarantor or otherwise, or which are secured by a lien on our property, and - renewals, extensions, modifications, replacements, restatements and refundings of, or any indebtedness or obligation issued in exchange for, any such indebtedness or obligation described in the above clauses of this definition. Senior debt will not include the convertible notes or any other indebtedness or obligation if its terms or the terms of the instrument under which or pursuant to which it is issued expressly provide that it is not superior in right of payment to the convertible notes. We may not make any payment on account of principal, premium or interest on the convertible notes, or redemption or repurchase of the convertible notes, if: - we default in our obligations to pay principal, premium, interest or other amounts on our senior debt, including a default under any redemption or repurchase obligation, and the default continues beyond any applicable grace period; or - any other default occurs and is continuing on any designated senior debt and: - the default permits the holders of the designated senior debt to accelerate its maturity, and - the trustee has received a notice (a payment blockage notice) of the default from us, the holder of such debt or such other person permitted to give such notice under the indenture. If payments of the convertible notes have been blocked by a payment default on senior debt, payments on the convertible notes may resume when the payment default has been cured or waived or ceases to exist. If payments on the convertible notes have been blocked by a nonpayment default, payments on the convertible notes may resume on the earlier of: - the date the nonpayment default is cured or waived or ceases to exist, or - 179 days after the payment blockage notice is received. No nonpayment default that existed on the day a payment blockage notice was delivered to the trustee can be used as the basis for any subsequent payment blockage notice. In addition, once a holder of designated senior debt has blocked payment on the convertible notes by giving a payment blockage notice, no new period of payment blockage can be commenced unless and until: - 365 days have elapsed since the effectiveness of the immediately prior payment blockage notice; and - all scheduled payments of principal, any premium and interest with respect to the convertible notes that have come due have been paid in full in cash. Designated senior debt means our obligations under any particular senior debt in which the instrument creating or evidencing the same or the assumption or guarantee thereof, or related agreements or documents to which we are a party, expressly provides that such indebtedness shall be designated senior debt for purposes of the indenture. The instrument, agreement or other document evidencing any designated senior debt may place limitations and conditions on the right of such senior debt to exercise the rights of designated senior debt. 66 69 In addition, all principal, premium, if any, interest and other amounts due on all senior debt must be paid in full in cash before you are entitled to receive any payment otherwise due upon any acceleration of the principal on the convertible notes as a result of: - an event of default of the convertible notes, or - payment or distribution of our assets to creditors upon any dissolution, winding up, liquidation or reorganization, whether voluntary or involuntary, marshaling of assets, assignment for the benefit of creditors, or in bankruptcy, insolvency, receivership or other similar proceedings. In the event of insolvency, creditors who are holders of senior debt may recover more, ratably, than you because of this subordination. The subordination may result in a reduction or elimination of payments on the convertible notes to you. In addition, the convertible notes will be structurally subordinated to all indebtedness and other liabilities of our subsidiaries, including trade payables and lease obligations. This occurs because our right to receive any assets of our subsidiaries upon their liquidation or reorganization, and your right to participate in those assets, will be effectively subordinated to the claims of that subsidiary's creditors, including trade creditors, except to the extent that we are recognized as a creditor of such subsidiary. If we are recognized as a creditor of that subsidiary, our claims would still be subordinate to any security interest in the assets of the subsidiary and any indebtedness of the subsidiary senior to us. The indenture does not limit our ability to incur senior debt or our ability or the ability of our subsidiaries to incur any other indebtedness. OPTIONAL REDEMPTION BY JUNIPER NETWORKS On or after the third business day after March 15, 2003 we may redeem the convertible notes in whole or in part, at the prices set forth below. If we elect to redeem all or part of the convertible notes, we will give at least 30, but no more than 60, days notice to you. The redemption price, expressed as a percentage of principal amount, is as follows for the following periods:
REDEMPTION PERIOD PRICE - ------ ---------- Beginning on the third business day after March 15, 2003 and ending on March 14, 2004.................................. Beginning on March 15, 2004 and ending on March 14, 2005.... Beginning on March 15, 2005 and ending on March 14, 2006.... Beginning on March 15, 2006 and ending on March 14, 2007....
and thereafter is equal to 100%. In each case, we will pay interest to, but excluding the redemption date. No sinking fund is provided for the convertible notes, which means that the indenture does not require us to redeem or retire the convertible notes periodically. PAYMENT AND CONVERSION We will make all payments of principal and interest on the convertible notes by dollar check drawn on an account maintained at a bank in the city of New York. If you hold registered convertible notes with a face value greater than $2,000,000, at your request we will make payments of principal or interest to you by wire transfer to an account maintained by you at a bank in the city of New York. Payment of any interest on the convertible notes will be made to the person in whose name the convertible note, or any predecessor note, is registered at the 67 70 close of business on March 1 or September 1, whether or not a business day, immediately preceding the relevant interest payment date (a regular record date). If you hold registered convertible notes with a face value in excess of $2,000,000 and you would like to receive payments by wire transfer, you will be required to provide the trustee with wire transfer instructions at least 15 days prior to the relevant payment date. Payments on any global note registered in the name of DTC or its nominee will be payable by the trustee to DTC or its nominee in its capacity as the registered holder under the indenture. Under the terms of the indenture, we and the trustee will treat the persons in whose names the convertible notes, including any global note, are registered as the owners for the purpose of receiving payments and for all other purposes. Consequently, neither we, the trustee nor any of our agents or the trustee's agents has or will have any responsibility or liability for: - any aspect of DTC's records or any participant's or indirect participant's records relating to or payments made on account of beneficial ownership interests in the global note, or for maintaining, supervising or reviewing any of DTC's records or any participant's or indirect participant's records relating to the beneficial ownership interests in the global note, or - any other matter relating to the actions and practices of DTC or any of its participants or indirect participants. We will not be required to make any payment on the convertible notes due on any day which is not a business day until the next succeeding business day. The payment made on the next succeeding business day will be treated as though it were paid on the original due date and no interest will accrue on the payment for the additional period of time. Convertible notes may be surrendered for conversion at the Corporate Trust Office of the trustee in the Borough of Manhattan, New York. Convertible notes surrendered for conversion must be accompanied by appropriate notices and any payments in respect of interest or taxes, as applicable. We have initially appointed the trustee as paying agent and conversion agent. We may terminate the appointment of any paying agent or conversion agent and appoint additional or other paying agents and conversion agents. However, until the convertible notes have been delivered to the trustee for cancellation, or moneys sufficient to pay the principal of, premium, if any, and interest on the convertible notes have been made available for payment and either paid or returned to us as provided in the indenture, the trustee will maintain an office or agency in the Borough of Manhattan, New York for surrender of convertible notes for conversion. Notice of any termination or appointment and of any change in the office through which any paying agent or conversion agent will act will be given in accordance with "-- Notices" below. All moneys deposited with the trustee or any paying agent, or then held by us, in trust for the payment of principal of, premium, if any, or interest on any convertible notes which remain unclaimed at the end of two years after the payment has become due and payable will be repaid to us, and you will then look only to us for payment. REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL If a change in control as defined below occurs, you will have the right, at your option, to require us to repurchase all of your convertible notes not previously called for redemption, or any portion of the principal amount thereof, that is equal to $1,000 or an integral multiple of $1,000. The price we are required to pay is 100% of the principal amount of the convertible notes to be repurchased, together with interest accrued to, but excluding, the repurchase date. At our option, instead of paying the repurchase price in cash, we may pay the repurchase price in our common stock valued at 95% of the average of the closing prices of the our common 68 71 stock for the five trading days immediately preceding and including the third trading day prior to the repurchase date. We may only pay the repurchase price in our common stock if we satisfy conditions provided in the indenture. Within 30 days after the occurrence of a change in control, we are obligated to give to you notice of the change in control and of the repurchase right arising as a result of the change of control. We must also deliver a copy of this notice to the trustee. To exercise the repurchase right, you must deliver on or before the 30th day after the date of our notice irrevocable written notice to the trustee of your exercise of your repurchase right, together with the convertible notes with respect to which the right is being exercised. We are required to repurchase the convertible notes on the date that is 45 days after the date of our notice. A change in control will be deemed to have occurred at the time after the convertible notes are originally issued that any of the following occurs: - any person, including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act, acquires a beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of our capital stock entitling the person to exercise 50% or more of the total voting power of all shares of our capital stock that is entitled to vote generally in elections of directors, other than an acquisition by us, any of our subsidiaries or any of our employee benefit plans; or - we merge or consolidate with or into any other person, any merger of another person into us or we convey, sell, transfer or lease all or substantially all of our assets to another person, other than - any such transaction: - that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of our capital stock, and - pursuant to which the holders of 50% or more of the total voting power of all shares of our capital stock entitled to vote generally in elections of directors immediately prior to such transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving corporation immediately after such transaction, and - any merger which is effected solely to change our jurisdiction of incorporation and results in a reclassification, conversion or exchange of outstanding shares of our common stock into solely shares of common stock. However, a change in control will not be deemed to have occurred if either: - the closing price per share of our common stock for any five trading days within the period of 10 consecutive trading days ending immediately after the later of the change in control or the public announcement of the change in control, in the case of a change in control relating to an acquisition of capital stock, or the period of 10 consecutive trading days ending immediately before the change in control, in the case of change in control relating to a merger, consolidation or asset sale, equals or exceeds 105% of the conversion price of the convertible notes in effect on each of those trading days, or - all of the consideration, excluding cash payments for fractional shares and cash payments made pursuant to dissenters' appraisal rights, in a merger or consolidation otherwise constituting a change of control under the first and second bullet points in the preceding paragraph above consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market, or will be so traded or 69 72 quoted immediately following such merger or consolidation, and as a result of such merger or consolidation the convertible notes become convertible solely into such common stock. For purposes of these provisions: - the conversion price is equal to $1,000 divided by the conversion rate; - whether a person is a beneficial owner will be determined in accordance with Rule 13d-3 under the Exchange Act; and - person includes any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act. The rules and regulations promulgated under the Exchange Act requires the dissemination of prescribed information to security holders in the event of an issuer tender offer and may apply in the event that the repurchase option becomes available to you. We will comply with this rule to the extent it applies at that time. We may, to the extent permitted by applicable law, at any time purchase convertible notes in the open market, by tender at any price or by private agreement. Any note that we purchase may, to the extent permitted by applicable law and subject to restrictions contained in the purchase agreement with the underwriters, be re-issued or resold or may, at our option, be surrendered to the trustee for cancellation. Any convertible notes surrendered for cancellation may not be re-issued or resold and will be canceled promptly. The definition of change in control includes a phrase relating to the conveyance, transfer, sale, lease or disposition of all or substantially all of our assets. There is no precise, established definition of the phrase substantially all under applicable law. Accordingly, your ability to require us to repurchase your convertible notes as a result of conveyance, transfer, sale, lease or other disposition of less than all of our assets may be uncertain. The foregoing provisions would not necessarily provide you with protection if we are involved in a highly leveraged or other transaction that may adversely affect you. Our ability to repurchase convertible notes upon the occurrence of a change in control is subject to important limitations. Some of the events constituting a change in control could result in an event of default under our senior debt. Moreover, a change in control could cause an event of default under, or be prohibited or limited by, the terms of our senior debt. As a result, unless we were to obtain a waiver, a repurchase of the convertible notes in cash could be prohibited under the subordination provisions of the indenture until the senior debt is paid in full. Although we have the right to repurchase the convertible notes with our common stock, subject to certain conditions, we cannot assure you that we would have the financial resources, or would be able to arrange financing, to pay the repurchase price in cash for all the convertible notes that might be delivered by holders of convertible notes seeking to exercise the repurchase right. If we were to fail to repurchase the convertible notes when required following a change in control, an event of default under the indenture would occur, whether or not such repurchase is permitted by the subordination provisions of the indenture. Any such default may, in turn, cause a default under our senior debt. See "-- Subordination". MERGERS AND SALES OF ASSETS BY THE COMPANY We may not consolidate with or merge into any other person or convey, transfer, sell or lease our properties and assets substantially as an entirety to any person, and we may not permit any person to consolidate with or merge into us or convey, transfer, sell or lease such person's properties and assets substantially as an entirety to us unless: 70 73 - the person formed by such consolidation or into or with which we are merged or the person to which our properties and assets are so conveyed, transferred, sold or leased, shall be a corporation, limited liability company, partnership or trust organized and existing under the laws of the United States, any State within the United States or the District of Columbia and, if we are not the surviving person, the surviving person assumes the payment of the principal of, premium, if any, and interest on the convertible notes and the performance of our other covenants under the indenture, and - immediately after giving effect to the transaction, no event of default, and no event that, after notice or lapse of time or both, would become an event of default, will have occurred and be continuing. EVENTS OF DEFAULT The following will be events of default under the indenture: - we fail to pay principal of or premium, if any, on any note when due, whether or not prohibited by the subordination provisions of the indenture; - we fail to pay any interest on any note when due, which failure continues for 30 days, whether or not prohibited by the subordination provisions of the indenture; - we fail to provide notice of a change in control, whether or not such notice is prohibited by the subordination provisions of the indenture; - we fail to perform any other covenant in the indenture, which failure continues for 60 days after written notice as provided in the indenture; - any indebtedness under any bonds, debentures, convertible notes or other evidences of indebtedness for money borrowed, or any guarantee thereto, by us or any of our significant subsidiaries in an aggregate principal amount in excess of $25,000,000 is not paid when due either at its stated maturity or upon acceleration thereof, and such indebtedness is not discharged, or such acceleration is not rescinded or annulled, within a period of 30 days after notice as provided in the indenture; and - certain events of bankruptcy, insolvency or reorganization involving us or any of our significant subsidiaries. Subject to the provisions of the indenture relating to the duties of the trustee in case an event of default shall occur and be continuing, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request or direction of any holder, unless the holder shall have furnished reasonable indemnity to the trustee. Subject to providing indemnification of the trustee, the holders of a majority in aggregate principal amount of the outstanding convertible notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee. If an event of default other than an event of default arising from events of insolvency, bankruptcy or reorganization occurs and is continuing, either the trustee or the holders of at least 25% in principal amount of the outstanding convertible notes may, subject to the subordination provisions of the indenture, accelerate the maturity of all convertible notes. However, after such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding convertible notes may, under certain circumstances, rescind and annul the acceleration if all events of default, other than the non-payment of principal of the convertible notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in the indenture. If an event of default arising from events of insolvency, bankruptcy or reorganization occurs, then the principal of, and accrued interest on, all the convertible notes will automatically become immediately due and payable without any 71 74 declaration or other act on the part of the holders of the convertible notes or the trustee. For information as to waiver of defaults, see "-- Meetings, Modification and Waiver" below. You will not have any right to institute any proceeding with respect to the indenture, or for any remedy under the indenture, unless: - you give the trustee written notice of a continuing event of default; - the holders of at least 25% in aggregate principal amount of the outstanding convertible notes have made written request and furnished reasonable indemnity to the trustee to institute proceedings; - the trustee has not received from the holders of a majority in aggregate principal amount of the outstanding convertible notes a direction inconsistent with the written request; and - the trustee shall have failed to institute such proceeding within 60 days of the written request. However, these limitations do not apply to a suit instituted by you for the enforcement of payment of the principal of, premium, if any, or interest on your convertible note on or after the respective due dates expressed in your convertible note or your right to convert your convertible note in accordance with the indenture. We will be required to furnish to the trustee annually a statement as to our performance of certain of our obligations under the indenture and as to any default in such performance. MEETINGS, MODIFICATION AND WAIVER The indenture contains provision for convening meetings of the holders of convertible notes to consider matters affecting their interests. Certain limited modifications of the indenture may be made without the necessity of obtaining the consent of the holders of the convertible notes. Other modifications and amendments of the indenture may be made, and certain past defaults by us may be waived, either: - with the written consent of the holders of not less than a majority in aggregate principal amount of the convertible notes at the time outstanding, or - by the adoption of a resolution, at a meeting of holders of the convertible notes at which a quorum is present, by the holders of at least 66 2/3% in aggregate principal amount of the convertible notes represented at such meeting. The quorum at any meeting called to adopt a resolution will be persons holding or representing a majority in aggregate principal amount of the convertible notes at the time outstanding and, at any reconvened meeting adjourned for lack of a quorum, 25% of such aggregate principal amount. However, a modification or amendment requires the consent of the holder of each outstanding note affected if it would: - change the stated maturity of the principal or interest of a note; - reduce the principal amount of, or any premium or interest on, any note; - reduce the amount payable upon a redemption or mandatory repurchase; - modify the provisions with respect to the repurchase rights of holders of convertible notes in a manner adverse to the holders; - change the place or currency of payment on a note; - impair the right to institute suit for the enforcement of any payment on any note; - modify our obligation to maintain an office or agency in New York City; 72 75 - modify the subordination provisions in a manner that is adverse to the holders of the convertible notes; - adversely affect the right to convert the convertible notes; - reduce the above-stated percentage of the principal amount of the holders whose consent is needed to modify or amend the indenture; - reduce the percentage of the principal amount of the holders whose consent is needed to waive compliance with certain provisions of the indenture or to waive certain defaults; or - reduce the percentage required for the adoption of a resolution or the quorum required at any meeting of holders of convertible notes at which a resolution is adopted. The holders of a majority in aggregate principal amount of the outstanding convertible notes may waive compliance by us with certain restrictive provisions of the indenture by written consent. Holders of at least 66 2/3% in aggregate of the principal amount of convertible notes represented at a meeting may also waive compliance by us with certain restrictive provisions of the indenture by the adoption of a resolution at the meeting if a quorum of holders are present and certain other conditions are met. The holders of a majority in aggregate principal amount of the outstanding convertible notes also may waive by written consent any past default under the indenture, except a default in the payment of principal, premium, if any, or interest. NOTICES Notice to holders of the registered convertible notes will be given by mail to the addresses as they appear in the security register. Notices will be deemed to have been given on the date of such mailing. Notice of a redemption of convertible notes will be given not less than 30 nor more than 60 days prior to the redemption date and will specify the redemption date. A notice of redemption of the convertible notes will be irrevocable. REPLACEMENT OF CONVERTIBLE NOTES We will replace any note that becomes mutilated, destroyed, stolen or lost at the expense of the holder upon delivery to the trustee of the mutilated convertible notes or evidence of the loss, theft or destruction satisfactory to us and the trustee. In the case of a lost, stolen or destroyed note, indemnity satisfactory to the trustee and us may be required at the expense of the holder of the note before a replacement note will be issued. PAYMENT OF STAMP AND OTHER TAXES We will pay all stamp and other duties, if any, which may be imposed by the United States or any political subdivision thereof or taxing authority thereof or therein with respect to the issuance of the convertible notes or of shares of stock upon conversion of the convertible notes. We will not be required to make any payment with respect to any other tax, assessment or governmental charge imposed by any government or any political subdivision thereof or taxing authority thereof or therein. GOVERNING LAW The indenture and the convertible notes will be governed by and construed in accordance with the laws of the State of New York, United States of America. THE TRUSTEE If an event of default occurs and is continuing, the trustee will be required to use the degree of care of a prudent person in the conduct of his own affairs in the exercise of its powers. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any of the holders of convertible notes, unless they shall have furnished to the trustee reasonable security or indemnity. 73 76 DESCRIPTION OF CAPITAL STOCK GENERAL We are authorized to issue 200,000,000 shares of common stock, $0.00001 par value, and 10,000,000 shares of undesignated preferred stock, $0.00001 par value. The following description of our capital stock does not purport to be complete and is subject to and qualified by our certificate of incorporation and bylaws, which are included as exhibits to the Registration Statement of which this prospectus forms a part, and by the provisions of applicable Delaware law. COMMON STOCK As of December 31, 1999, there were 155,938,599 shares of common stock outstanding which were held of record by approximately 300 stockholders. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available for that purpose. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of us, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be issued upon the closing of this offering will be fully paid and nonassessable. PREFERRED STOCK The board of directors has the authority, without action by the stockholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each series, any or all of which may be greater than the rights of the common stock. We cannot state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of the common stock until the board of directors determines the specific rights of the holders of such preferred stock. However, the effects might include, among other things, restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock and delaying or preventing a change in control of us without further action by the stockholders. There are no shares of preferred stock outstanding as of December 31, 1999. We have no present plans to issue any shares of preferred stock. REGISTRATION RIGHTS Under the terms of certain registration rights agreements between us and the holders of the registrable securities, twelve months after the closing of our initial public offering and at their expense, require on three separate occasions that we register their shares for public resale on Form S-3 or similar short-form registration, provided that we are eligible to use Form S-3 or similar short-form registration, and provided further that the value of the securities to be registered is at least $5,000,000. Furthermore, in the event we elect to register any of our shares of common stock for purposes of effecting any public offering, the holders of registrable 74 77 securities are entitled, at our expense, to include their shares of common stock in the registration, subject to the right of the underwriter to reduce the number of shares proposed to be registered in view of market conditions. DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS Certain provisions of Delaware law and our certificate of incorporation and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise and the removal of incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms. We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person because an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an interested stockholder is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status, did own) 15% or more of a corporation's voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders. Our certificate of incorporation and bylaws require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, special meetings of our stockholders may be called only by the board of directors or certain of our officers. Our certificate of incorporation and bylaws also provide that, beginning upon the closing of this offering, our board of directors will be divided into three classes, with each class serving staggered three-year terms, and that certain amendments of the certificate of incorporation and of the bylaws require the approval of holders of at least 66 2/3% of the voting power of all outstanding stock. These provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of us. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock is Norwest Bank Minnesota, N.A. CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES The following is a general discussion of certain U.S. federal income and estate tax consequences to beneficial owners of the convertible notes or underlying common stock. This discussion is based upon the Internal Revenue Code of 1986, as amended (the code), U.S. Treasury Regulations (regulations), Internal Revenue Service (IRS) rulings and pronouncements, and judicial decisions now in effect, all of which are subject to change, possibly with retroactive effect, or different interpretation. 75 78 This discussion is for general information only and does not address all aspects of U.S. federal income taxation that may be relevant to beneficial owners of the convertible notes or common stock. This discussion does not describe the tax consequences: - arising under the laws of any foreign, state or local jurisdiction, - that may be relevant to particular beneficial owners in light of their personal circumstances, such as holders subject to the U.S. federal alternative minimum tax, or - to certain types of beneficial owners, such as certain financial institutions, insurance companies, tax-exempt entities, dealers in securities, persons who hold the convertible notes or common stock in connection with a straddle, hedging or conversion transaction for U.S. federal income tax purposes, or persons that have a functional currency other than the U.S. dollar, who may be subject to special rules. This discussion assumes that each holder has acquired the convertible notes on their original issuance at their original offering price and holds the convertible notes and common stock received upon conversion thereof as capital assets within the meaning of Section 1221 of the code. We have not sought any ruling from the IRS with respect to statements made and the conclusions reached in this discussion and there can be no assurance that the IRS will agree with such statements and conclusions. For purposes of this discussion, the term U.S. holder means a beneficial owner who or that: - is a citizen or resident of the United States, - is a corporation or partnership created or organized in or under the laws of the United States or a political subdivision thereof, unless, in the case of a partnership, future regulations provide to the contrary, - is an estate the income of which is subject to U.S. federal income taxation regardless of its source, - is a trust if a U.S. court is able to exercise primary supervision over the administration of the trust and one more U.S. persons, within the meaning of Section 7701(a)(30) of the code (U.S. persons), have authority to control all substantial decisions of the trust, or - is otherwise subject to U.S. federal income taxation on a net income basis in respect of the convertible notes or common stock. As used herein, a non-U.S. holder means a beneficial owner who or that is not a U.S. holder. PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION IN THIS OFFERING, AND THEIR OWNERSHIP AND DISPOSITION OF THE CONVERTIBLE NOTES, INCLUDING CONVERSION OF THE CONVERTIBLE NOTES, OR COMMON STOCK, INCLUDING THE EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES. U.S. HOLDERS Interest on Convertible Notes. Interest paid on a convertible note will be taxable to a U.S. holder as ordinary interest income, at the time that such interest is accrued or actually or constructively received, in accordance with such U.S. holder's method of accounting for U.S. federal income tax purposes. We expect that the convertible notes will not be issued with original issue discount, within the meaning of the code. Conversion of Convertible Notes. A U.S. holder of a convertible note generally will not recognize gain or loss on the conversion of the convertible note into common stock. Such U.S. holder's aggregate tax basis in the common stock received upon conversion of the 76 79 convertible note will be equal to the U.S. holder's adjusted tax basis in the convertible note at the time of conversion, less any portion of that basis allocable to cash received in lieu of a fractional share. The holding period of the common stock received upon conversion of a convertible note generally will include the period during which the U.S. holder held such convertible note prior to the conversion. Cash received in lieu of a fractional share of common stock should be treated as a payment in exchange for such fractional share. Gain or loss recognized on the receipt of cash paid in lieu of such fractional share generally will be capital gain or loss equal to the difference between the amount of cash received and the amount of tax basis allocable to the fractional share. Adjustment of Conversion Rate. The conversion rate of the convertible notes is subject to adjustment in certain circumstances. Under Section 305(c) of the code, adjustments that have the effect of increasing or decreasing the proportionate interest of U.S. holders of the convertible notes in our assets or earnings (for example, an adjustment following a distribution of property by us to our stockholders) may in some circumstances give rise to deemed distributions to U.S. holders. Similarly, a failure to adjust the conversion rate of the convertible notes to reflect a stock dividend or other event increasing the proportionate interest of shareholders of outstanding common stock can in some circumstances give rise to deemed distributions to such shareholders. Deemed distributions will be treated as a dividend, return of capital or capital gain in accordance with the earnings and profits rules discussed under "-- Distributions on Common Stock" below. Distributions on Common Stock. Distributions on common stock will constitute a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Dividends paid to U.S. holders that are U.S. corporations may qualify for the dividends-received deduction. Noncorporate taxpayers and certain corporations are not entitled to the dividends-received deduction. To the extent, if any, that a U.S. holder receives a distribution on common stock that would otherwise constitute a dividend for U.S. federal income tax purposes but that exceeds our current and accumulated earnings and profits, such distribution will be treated first as a non-taxable return of capital reducing the US. holder's tax basis in the common stock. Any such distributions in excess of the U.S. holder's tax basis in the common stock will be treated as capital gain. Sale or Exchange of Convertible Notes or Common Stock. In general, subject to the discussion under "Market Discount" below: - a U.S. Holder of a convertible note will recognize capital gain or loss upon the sale, redemption, retirement or other disposition of the convertible note measured by the difference between the amount of cash and the fair market value of any property received, except to the extent attributable to the payment of accrued interest, and such U.S. Holder's adjusted tax basis in the convertible note; - a U.S. Holder of common stock received upon conversion of a convertible note will recognize capital gain or loss upon the sale, exchange, redemption or other disposition of the common stock under rules similar to the computation of gain or loss on the disposition of the convertible notes. However, special rules may apply to a redemption of common stock which may result in the proceeds of the redemption being treated as a dividend. In general, the maximum tax rate for noncorporate taxpayers on long-term capital gain is 20% with respect to capital assets, including the convertible notes and common stock, but only if they have been held for more than 12 months at the time of disposition. Market Discount. The resale of convertible notes may be affected by the impact on a purchaser of the market discount provisions of the code. For this purpose, the market discount 77 80 on a convertible note generally will be equal to the amount, if any, by which the stated redemption price at maturity of the convertible note immediately after its acquisition, other than at original issue, exceeds the U.S. holder's adjusted tax basis in the convertible note. Subject to a de minimis exception, these provisions generally require a U.S. holder who acquires a convertible note at a market discount to treat as ordinary income any gain recognized on the disposition of such convertible note to the extent of the accrued market discount on such convertible note at the time of disposition, unless the U.S. holder elects to include accrued market discount in income currently. In general, market discount will be treated as accruing on a straight-line basis over the remaining term of the convertible note at the time of acquisition, or, at the election of the U.S. holder, under a constant yield method. A U.S. holder who acquires a convertible note at a market discount and who does not elect to include accrued market discount in income currently may be required to defer the deduction of a portion of the interest on any indebtedness incurred or maintained to purchase or carry the convertible note until the convertible note is disposed of in a taxable transaction. If a U.S. holder acquires a convertible note with market discount and receives common stock upon conversion of the convertible note, the amount of accrued market discount not previously included in income with respect to the convertible note through the date of conversion will be treated as ordinary income upon the disposition of the common stock. NON-U.S. HOLDERS Payments of Interest. Generally, payments of interest on the convertible notes to, or on behalf of, a non-U.S. holder will not be subject to U.S. federal withholding tax if: - the non-U.S. holder does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock; - the non-U.S. Holder is not: - a controlled foreign corporation for U.S. federal income tax purposes that is related to us through stock ownership; or - a bank that received the convertible note on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business; and - the non-U.S. holder provides a statement signed under penalties of perjury that includes its name and address and certifies that it is not a U.S. person in compliance with applicable requirements of the regulations or an exemption is otherwise established. If these requirements cannot be satisfied, a non-U.S. holder will be subject to U.S. federal withholding tax at a rate of 30%, or lower treaty rate, if applicable, on interest payments on the convertible notes. Conversion of Convertible Notes. A non-U.S. holder generally will not be subject to U.S. federal withholding tax on the conversion of a convertible note into common stock. To the extent a non-U.S. holder receives cash in lieu of a fractional share on the conversion, such cash may give rise to gain that would be subject to the rules described below with respect to the sale or exchange of a convertible note or Common Stock. See "-- Sale or Exchange of Convertible Notes or Common Stock" below. Adjustment of Conversion Rate. The conversion rate of the convertible notes is subject to adjustment in certain circumstances. Any such adjustment could, in certain circumstances, give rise to a deemed distribution to non-U.S. holders of the convertible notes. In such case, the deemed distribution would be subject to the rules below regarding withholding of U.S. federal tax on dividends in respect of common stock. See "-- Distributions on Common Stock" below. Distributions on Common Stock. Distributions on common stock will constitute a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Dividends paid on common stock 78 81 held by a non-U.S. holder will be subject to U.S. federal withholding tax at a rate of 30%, or lower treaty rate, if applicable. Sale or Exchange of Convertible Notes or Common Stock. In general, a non-U.S. holder will not be subject to U.S. federal withholding tax on gain recognized upon the sale or other disposition, including a redemption, of a convertible note or common stock received upon conversion thereof unless the non-U.S. holder: - is a nonresident alien individual who is present in the United States for 183 or more days in the taxable year in which the gain is realized and certain other conditions are satisfied, or - is subject to tax pursuant to the provisions of U.S. tax law applicable to certain U.S. expatriates. U.S. Estate Tax. Convertible notes owned or treated as owned by an individual who is not a citizen or resident, as specially defined for U.S. federal estate tax purposes, of the United States at the time of death (nonresident decedent) will not be included in the nonresident decedent's gross estate for U.S. federal estate tax purposes as a result of the nonresident decedent's death, provided that, at the time of death, the nonresident decedent does not own, actually or constructively, 10% or more of the total combined voting power of all classes of our stock and payments with respect to such convertible notes would not have been effectively connected with the conduct of a trade or business in the United States by the nonresident decedent. Common stock owned or treated as owned by a nonresident decedent will be included in the nonresident decedent's gross estate for U.S. federal estate tax purposes as a result of the nonresident decedent's death. Subject to applicable treaty limitations, if any, a nonresident decedent's estate may be subject to U.S. federal estate tax on property included in the estate for U.S. federal estate tax purposes. IRS REPORTING AND BACKUP WITHHOLDING Certain noncorporate U.S. holders may be subject to IRS reporting and backup withholding at a rate of 31% on payments of interest on the convertible notes, dividends on common stock and proceeds from the sale or other disposition of the convertible notes or common stock. Backup withholding will only be imposed where the noncorporate U.S. holder: - fails to furnish its taxpayer identification number (TIN), which would ordinarily be his or her social security number, - furnishes an incorrect TIN, - is notified by the IRS that he or she has failed to properly report payments of interest or dividends, or - under certain circumstances, fails to certify, under penalties of perjury, that he or she has furnished a correct TIN and has not been notified by the IRS that he or she is subject to backup withholding. We must also institute backup withholding on payments made to a U.S. holder if instructed to do so by the IRS. A failure to provide us with a correct TIN may also subject a U.S. holder to penalties imposed by the IRS. We will report annually to the IRS and to each non-U.S. holder any interest and dividends paid with respect to a convertible note or common stock, respectively, that is subject to U.S. federal withholding tax or that is exempt from such tax under an applicable treaty or the code. We will also report to the IRS and to each non-U.S. holder such income paid which is exempt from federal withholding tax because it is effectively connected with such non-U.S. holder's U.S. trade or business. However, a non-U.S. holder will not be subject to IRS reporting 79 82 or backup withholding if the payor has received appropriate certification statements from or on behalf of the non-U.S. holder and provided that the payor does not have actual knowledge that the non-U.S. holder is a U.S. person. The payment of the proceeds from the disposition of the convertible notes or common stock to or through the U.S. office of any U.S. or foreign broker will be subject to IRS reporting and possibly backup withholding unless the owner certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge that the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of a convertible note or common stock to or through a non-U.S. office of a non-U.S. broker that is not a U.S. related person will not be subject to IRS reporting or backup withholding. For this purpose, a U.S. related person is: - a controlled foreign corporation for U.S. federal income tax purposes, - a non-U.S. person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment, or for such part of the period that the broker has been in existence, is derived from the activities that are effectively connected with the conduct of a U.S. trade or business, or - with respect to payments made after December 31, 2000, a foreign partnership, if at any time during its tax year, one or more of its partners are U.S. persons, as defined in regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership or if, at any time during its tax year, such foreign partnership is engaged in a United States trade or business. In the case of the payment of proceeds from the disposition of convertible notes or common stock to or through a non-U.S. office of a broker that is a U.S. related person, the regulations require IRS reporting on the payment unless the broker has documentary evidence in its files that the owner is a non-U.S. holder and the broker has no knowledge to the contrary. Backup withholding will not apply to payments made through foreign offices of a broker that is a U.S. person or a U.S. related person, absent actual knowledge that the payee is a U.S. person. Any amounts withheld under the backup withholding rules from a payment to a holder will be allowed as a credit against such holder's U.S. federal income tax liability, if any, or will otherwise be refundable, provided that the requisite procedures are followed. Holders of the convertible notes or common stock should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption, if applicable. PROSPECTIVE FINAL REGULATIONS On October 6, 1997, new regulations were issued which modify the requirements imposed on a non-U.S. holder and certain intermediaries for establishing the recipient's status as a non-U.S. holder eligible for exemption from U.S. federal withholding tax and backup withholding described above. The new regulations generally are effective for payments made after December 31, 2000, subject to certain transition rules. In general, the new regulations do not significantly alter the substantive withholding and IRS reporting requirements, but, rather, unify current certification procedures and forms and clarify reliance standards. In addition, the new regulations impose more stringent conditions on the ability of financial intermediaries acting for a non-U.S. holder to provide certifications on behalf of the non-U.S. holder, which may include entering into an agreement with the IRS to audit certain documentation with respect to such certifications. Non-U.S. holders should consult their own tax advisors to determine the effects of the application on the new regulations on their particular circumstances. 80 83 WHERE YOU MAY FIND ADDITIONAL INFORMATION We filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act for the convertible notes in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement or incorporated herein by reference. For further information with respect to Juniper Networks, we refer you to the registration statement and the exhibits and schedule that were filed with the registration statement or incorporated herein by reference. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement or incorporated herein by reference are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement or incorporated herein by reference. A copy of the registration statement and the exhibits and schedule that were filed with the registration statement or incorporated herein by reference may be inspected without charge at the public reference facilities maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon payment of the prescribed fee. The Securities and Exchange Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. The address of the site is http://www.sec.gov. We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance with the requirements of the Securities Exchange Act of 1934, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission. These periodic reports, proxy statements and other information will be available for inspection and copying at the regional offices, public reference facilities and web site of the Securities and Exchange Commission referred to above. LEGAL MATTERS The validity of the convertible notes, and the underlying common stock offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain legal matters will be passed upon for the underwriters by Brobeck Phleger & Harrison LLP, San Francisco, California. As of September 29, 1999, WS Investment Company 96A and WS Investment Co. 96B, each an investment partnership composed of certain current and former members of and persons associated with Wilson Sonsini Goodrich & Rosati, Professional Corporation, in addition to certain current individual members of Wilson Sonsini Goodrich & Rosati, Professional Corporation, beneficially own an aggregate of 159,374 shares of our common stock. Since that time the shares held by those partnerships have been distributed to the individual partners and some of the shares have been sold in open market transactions. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. 81 84 UNDERWRITING Juniper Networks and the underwriters for the offering named below have entered into an underwriting agreement with respect to the convertible notes being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the principal amount of convertible notes indicated in the following table.
Principal Amount of Underwriters Convertible Notes ------------ ------------------- Goldman, Sachs & Co......................................... $ Credit Suisse First Boston Corporation...................... FleetBoston Robertson Stephens Inc.......................... Dain Rauscher Incorporated.................................. SG Cowen Securities Corporation............................. Warburg Dillon Read LLC..................................... ------------ Total.................................................. $500,000,000 ============
------------------------ If the underwriters sell more convertible notes than the total principal amount set forth in the table above, the underwriters have an option to buy up to an additional $75,000,000 principal amount of convertible notes from Juniper Networks to cover such sales. They may exercise that option for 30 days. If any convertible notes are purchased pursuant to this option, the underwriters will severally purchase convertible notes in approximately the same proportion as set forth in the table above. The following table shows the per convertible note and total underwriting discounts and commissions to be paid to the underwriters by Juniper Networks. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional convertible notes.
Paid by the Company ---------------------------- No Exercise Full Exercise ----------- ------------- Per Convertible Note........................................ % % Total....................................................... $ $
Convertible notes sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any convertible notes sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price of up to % of the principal amount of the convertible notes. Any such securities dealers may resell any convertible notes purchased from the underwriters to certain other brokers or dealers at a discount from the initial public offering price of up to % of the principal amount of the convertible notes. If all the convertible notes are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms. Juniper Networks, the officers and the directors have agreed with the underwriters not to dispose of or hedge any of its shares of common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 90 days after the date of this prospectus, except with the prior written consent of the underwriters, subject to certain exceptions. The convertible notes are a new issue of securities with no established trading market. Juniper Networks has been advised by the underwriters that the underwriters intend to make a market in the convertible notes but are not obligated to do so and may discontinue market 82 85 making at any time without notice. No assurance can be given as to the liquidity of the trading market for the convertible notes. In connection with the offering, the underwriters may purchase and sell convertible notes and common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater principal amount of convertible notes than they are required to purchase in this offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the convertible notes or the common stock while the offering is in progress. The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased convertible notes sold by or for the account of such underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the convertible notes and the common stock. As a result, the price of the convertible notes or the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. Juniper Networks estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $800,000. Juniper Networks has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933. 83 86 (THIS PAGE INTENTIONALLY LEFT BLANK) 84 87 JUNIPER NETWORKS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Ernst & Young LLP, Independent Auditors........... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statement of Stockholders' Equity.............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 88 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Juniper Networks, Inc. We have audited the accompanying consolidated balance sheets of Juniper Networks, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Juniper Networks, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Palo Alto, California January 17, 2000 F-2 89 JUNIPER NETWORKS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, -------------------- 1999 1998 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $158,043 $ 20,098 Short-term investments.................................... 187,915 -- Accounts receivable, net of allowance for doubtful accounts of $632 in 1999 (none in 1998)(1)............. 23,950 8,056 Prepaid expenses and other current assets................. 7,925 680 -------- -------- Total current assets........................................ 377,833 28,834 Property and equipment, net................................. 12,416 7,702 Long-term investments....................................... 97,201 -- Intangibles and other long-term assets...................... 25,928 135 -------- -------- Total assets................................................ $513,378 $ 36,671 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 15,368 $ 4,245 Accrued warranty.......................................... 9,641 684 Accrued compensation and related liabilities.............. 5,371 1,114 Other accrued liabilities................................. 6,013 500 Deferred revenue.......................................... 19,270 5,639 Current obligations under capital leases.................. -- 2,220 -------- -------- Total current liabilities................................... 55,663 14,402 Long-term liabilities....................................... -- 5,204 Commitments Stockholders' equity: Convertible preferred stock, $0.00001 par value, issuable in series: 10,000 and 10,859 shares authorized at December 31, 1999 and 1998; none and 10,717 shares issued and outstanding at December 31, 1999 and 1998... -- -- Common stock, $0.00001 par value, 200,000 shares authorized; 155,939 and 61,732 shares issued and outstanding at December 31, 1999 and 1998.............. 2 1 Additional paid-in capital................................ 513,696 65,350 Deferred stock compensation............................... (3,001) (5,153) Accumulated other comprehensive loss...................... (815) -- Accumulated deficit....................................... (52,167) (43,133) -------- -------- Stockholders' equity........................................ 457,715 17,065 -------- -------- Total liabilities and stockholders' equity.................. $513,378 $ 36,671 ======== ========
- --------------- (1) Includes $632 due from Ericsson Business Networks AB, a related party, as of December 31, 1999. See accompanying notes. F-3 90 JUNIPER NETWORKS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- -------- -------- Net revenues(1)....................................... $102,606 $ 3,807 $ -- Cost of revenues...................................... 45,272 4,416 -- -------- -------- -------- Gross profit (loss)................................... 57,334 (609) -- Operating expenses: Research and development............................ 41,502 23,987 9,406 Sales and marketing................................. 20,931 4,216 1,149 General and administrative.......................... 5,235 2,223 1,043 Amortization of goodwill and purchased intangibles and deferred stock compensation.................. 4,286 1,235 -- -------- -------- -------- Total operating expenses......................... 71,954 31,661 11,598 -------- -------- -------- Operating loss........................................ (14,620) (32,270) (11,598) Interest income, net.................................. 8,011 1,301 1,235 -------- -------- -------- Loss before income taxes.............................. (6,609) (30,969) (10,363) Provision for income taxes............................ 2,425 2 -- -------- -------- -------- Net loss.............................................. $ (9,034) $(30,971) $(10,363) ======== ======== ======== Basic and diluted net loss per share.................. $ (0.10) $ (0.80) $ (0.40) ======== ======== ======== Shares used in computing basic and diluted net loss per share........................................... 94,661 38,871 25,773 ======== ======== ======== Pro forma basic and diluted net loss per share (unaudited)......................................... $ (0.07) $ (0.28) ======== ======== Shares used in computing pro forma basic and diluted net loss per share (unaudited)...................... 131,480 111,210 ======== ========
- --------------- (1) Includes $5.5 million in revenue from Ericsson Business Networks AB, a related party, for the year ended December 31, 1999. See accompanying notes. F-4 91 JUNIPER NETWORKS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
CONVERTIBLE ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED OTHER ---------------- ---------------- PAID-IN STOCK COMPREHENSIVE ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION LOSS DEFICIT ------- ------ ------- ------ ---------- ------------ ------------- ----------- Balance at December 31, 1996........ 5,566 $-- 47,683 $-- $ 11,527 $ -- $ -- $ (1,799) Issuance of warrants to purchase Series B preferred stock......... -- -- -- -- 1 -- -- -- Issuance of Series C preferred stock to investors............... 5,151 -- -- -- 45,953 -- -- -- Issuance of warrants to purchase Series C preferred stock......... -- -- -- -- 3 -- -- -- Issuance of common stock, net of repurchases...................... -- -- 9,681 -- 375 -- -- -- Compensation expense related to stock options.................... -- -- -- -- 351 -- -- -- Net loss........................... -- -- -- -- -- -- -- (10,363) ------- -- ------- -- -------- ------- ----- -------- Balance at December 31, 1997........ 10,717 -- 57,364 -- 58,210 -- -- (12,162) Exercise of stock options by employees, net of repurchases.... -- -- 4,368 1 752 -- -- -- Deferred stock compensation........ -- -- -- -- 6,388 (6,388) -- -- Amortization of deferred stock compensation..................... -- -- -- -- -- 1,235 -- -- Net loss........................... -- -- -- -- -- -- -- (30,971) ------- -- ------- -- -------- ------- ----- -------- Balance at December 31, 1998........ 10,717 -- 61,732 1 65,350 (5,153) -- (43,133) Issuance of Series D and D-1 preferred stock to investors..... 3,080 -- -- -- 33,948 -- -- -- Conversion of preferred stock to common stock..................... (13,797) -- 76,794 -- -- -- -- -- Issuance of common stock, net of issuance costs of $1,885......... -- -- 11,613 1 389,454 -- -- -- Exercise of common stock warrants......................... -- -- 779 -- -- -- -- -- Exercise of stock options by employees, net of repurchases.... -- -- 4,888 -- 6,870 -- -- -- Issuance of common stock and options in connection with the acquisition of intellectual property and other intangibles... -- -- 133 -- 16,960 -- -- -- Deferred stock compensation........ -- -- -- -- 1,114 (1,114) -- -- Amortization of deferred stock compensation..................... -- -- -- -- -- 3,266 -- -- Other comprehensive loss: Change in unrealized loss on available-for-sale securities..................... -- -- -- -- -- -- (815) -- Net loss......................... -- -- -- -- -- -- -- (9,034) Comprehensive loss................. -- -- -- -- -- -- -- -- ------- -- ------- -- -------- ------- ----- -------- Balance at December 31, 1999........ -- $-- 155,939 $2 $513,696 $(3,001) $(815) $(52,167) ======= == ======= == ======== ======= ===== ======== TOTAL STOCKHOLDERS' EQUITY ------------- Balance at December 31, 1996........ $ 9,728 Issuance of warrants to purchase Series B preferred stock......... 1 Issuance of Series C preferred stock to investors............... 45,953 Issuance of warrants to purchase Series C preferred stock......... 3 Issuance of common stock, net of repurchases...................... 375 Compensation expense related to stock options.................... 351 Net loss........................... (10,363) -------- Balance at December 31, 1997........ 46,048 Exercise of stock options by employees, net of repurchases.... 753 Deferred stock compensation........ -- Amortization of deferred stock compensation..................... 1,235 Net loss........................... (30,971) -------- Balance at December 31, 1998........ 17,065 Issuance of Series D and D-1 preferred stock to investors..... 33,948 Conversion of preferred stock to common stock..................... -- Issuance of common stock, net of issuance costs of $1,885......... 389,455 Exercise of common stock warrants......................... -- Exercise of stock options by employees, net of repurchases.... 6,870 Issuance of common stock and options in connection with the acquisition of intellectual property and other intangibles... 16,960 Deferred stock compensation........ -- Amortization of deferred stock compensation..................... 3,266 Other comprehensive loss: Change in unrealized loss on available-for-sale securities..................... (815) Net loss......................... (9,034) -------- Comprehensive loss................. (9,849) -------- Balance at December 31, 1999........ $457,715 ========
See accompanying notes. F-5 92 JUNIPER NETWORKS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------------- 1999 1998 1997 --------- --------- --------- OPERATING ACTIVITIES: Net loss.................................................... $ (9,034) $ (30,971) $ (10,363) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization............................. 5,306 2,171 712 Amortization of goodwill and purchased intangibles, prepaid maintenance contracts and deferred stock compensation............................................ 4,933 1,602 589 Loss on disposal of property and equipment................ -- -- 59 Issuance of stock for consulting services................. -- 30 21 Issuance of warrants in connection with certain leasing arrangements............................................ -- -- 14 Changes in operating assets and liabilities: Accounts receivable..................................... (15,894) (8,056) -- Prepaid expenses and other current assets............... (7,892) (504) (699) Other long-term assets.................................. (398) (10) (104) Accounts payable and other current liabilities.......... 16,593 4,084 489 Accrued warranty........................................ 8,957 684 -- Accrued milestone payment............................... -- (423) 423 Accrued compensation and related liabilities............ 4,257 869 245 Deferred revenue........................................ 13,631 5,639 -- Other long-term liabilities............................. -- 43 -- --------- --------- --------- Net cash provided by (used in) operating activities......... 20,459 (24,842) (8,614) INVESTING ACTIVITIES: Purchases of property and equipment, net.................... (10,020) (6,531) (3,110) Purchases of available-for-sale investments................. (324,437) (3,501) (20,715) Maturities of available-for-sale investments................ 38,506 19,286 10,800 Minority equity investments................................. (8,000) -- -- Acquisition of intellectual property and other intangibles............................................... (1,456) -- -- --------- --------- --------- Net cash provided by (used in) investing activities......... (305,407) 9,254 (13,025) FINANCING ACTIVITIES: Proceeds from sale-leaseback liabilities.................... -- 5,705 2,603 Payments on lease obligations............................... (7,381) (1,157) (439) Proceeds from issuance of preferred stock................... 33,948 -- 45,953 Proceeds from issuance of common stock...................... 396,326 696 366 --------- --------- --------- Net cash provided by financing activities................... 422,893 5,244 48,483 --------- --------- --------- Net increase (decrease) in cash and cash equivalents........ 137,945 (10,344) 26,844 Cash and cash equivalents at beginning of period............ 20,098 30,442 3,598 --------- --------- --------- Cash and cash equivalents at end of period.................. $ 158,043 $ 20,098 $ 30,442 ========= ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest...................................... $ 477 $ 592 $ 210 ========= ========= ========= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Acquisition of property and equipment under capital lease... $ -- $ 5,692 $ 2,243 ========= ========= ========= Deferred stock compensation................................. $ 1,114 $ 6,388 $ -- ========= ========= ========= Common stock issued in connection with the acquisition of intellectual property and other intangibles............... $ 16,960 $ -- $ -- ========= ========= =========
See accompanying notes. F-6 93 JUNIPER NETWORKS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Juniper Networks, Inc. ("Juniper Networks") was incorporated in the state of California on February 2, 1996. Juniper Networks was reincorporated in the state of Delaware effective as of March 15, 1998. Juniper Networks was established for the purpose of providing Internet infrastructure solutions to Internet service providers and other telecommunication service providers. Juniper Networks develops next generation Internet backbone routers. From inception, in February 1996, through September 1998, Juniper Networks' operating activities were primarily devoted to increasing research and development capabilities, designing ASICs, developing software, developing and testing the M40 and other products, staffing the administrative, marketing and sales organizations and establishing strategic relationships. Accordingly, Juniper Networks was classified as a development stage company through that date. Juniper Networks commenced product shipments in October 1998 and therefore emerged from the development stage. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Juniper Networks and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. RECLASSIFICATIONS Certain reclassifications, none of which affected operating or net loss, have been made to prior year amounts to conform to the current year presentation. CASH, CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS Juniper Networks considers all highly liquid investment securities with maturities from date of purchase of 90 days or less to be cash equivalents. Short-term and long-term investments consist of debt securities with original maturities between three months and three years. Management determines the appropriate classification of debt and equity securities at the time of purchase and evaluates such designation as of each balance sheet date. To date, all marketable debt securities have been classified as available-for-sale and are carried at fair value with unrealized gains and losses, if any, included in stockholders' equity. Realized gains and losses and declines in value of securities judged to be other than temporary are included in interest income and have not been significant to date. Interest and dividends on all securities are included in interest income. CONCENTRATIONS Financial instruments that potentially subject Juniper Networks to concentrations of credit risk consist principally of investments in debt securities and trade receivables. Management F-7 94 believes the financial risks associated with these financial instruments are minimal. Juniper Networks maintains its cash, cash equivalents and investments with high quality financial institutions. Juniper Networks performs ongoing credit evaluations of its customers and generally does not require collateral on accounts receivable. Juniper Networks' revenues to date have been derived for the sale of one product, the M40. For the year ended December 31, 1999, two customers, A and C, accounted for 32% and 26% of Juniper Networks' net revenues. For the year ended December 31, 1998, two customers, A and B, accounted for 78% and 22% of Juniper Networks' net revenues. For the year ended December 31, 1999, export sales to Europe and Asia accounted for a total of 21.9% of net revenues. Juniper Networks purchases certain custom semiconductor chips from a sole supplier. Additionally, Juniper Networks relies on one hardware manufacturer for the production of its product. The inability of the supplier or manufacturer to fulfill supply requirements of Juniper Networks could negatively impact future results. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of Juniper Networks' short-term and long-term investments is based on quoted market prices. The fair value of short-term and long-term capital lease obligations is estimated based on current interest rates available to Juniper Networks for debt instruments with similar terms, degrees of risk, and remaining maturities. The carrying values of these obligations approximate their respective fair values as of December 31, 1998. PROPERTY AND EQUIPMENT Property and equipment, including equipment leased under capital leases, are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the lesser of the estimated useful life, generally three to five years, or the lease term of the respective assets. INTANGIBLES AND OTHER ASSETS Intangibles and other assets include equity investments made in privately held companies in which Juniper Networks has less than a 20% equity ownership interest and over which Juniper Networks has no ability to exercise significant influence. Such investments are accounted for on the cost basis and are reviewed for impairment indicators. Through December 31, 1999, no impairment indicators have been identified and no write-downs of the cost basis of these investments has been made. Also included in intangibles and other assets is goodwill and other intangibles as a result of the November 1999 acquisition of intellectual property and other intangible assets. The goodwill and other intangibles are being amortized over a three-year period. REVENUE RECOGNITION Juniper Networks generally recognizes product revenue at the time of shipment, assuming that collectibility is probable, unless Juniper Networks has future obligations for network interoperability or has to obtain customer acceptance, in which case revenue is deferred until these obligations are met. Revenue from service obligations is deferred and recognized on a straight-line basis over the contractual period. Amounts billed in excess of revenue recognized are included as deferred revenue and accounts receivable in the accompanying consolidated balance sheets. F-8 95 WARRANTY RESERVES Juniper Networks' product generally carries a one-year warranty that includes factory repair services as needed for replacement of parts. Estimated expenses for warranty obligations are accrued as revenue is recognized. RESEARCH AND DEVELOPMENT Costs to develop Juniper Networks' products are expensed as incurred in accordance with the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 2, "Accounting for Research and Development Costs," which establishes accounting and reporting standards for research and development. Juniper Networks adopted SOP 98-1 "Accounting for Costs of Computer Software Developed or Obtained for Internal Use" during 1999, which requires that all costs related to the development of internal use software be expensed as incurred, other than those incurred during the application development stage. Costs incurred during the application development stage were insignificant for all periods presented. STOCK-BASED COMPENSATION Juniper Networks accounts for its stock options and equity awards in accordance with the provisions of the Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and has elected to follow the "disclosure only" alternative prescribed by Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). STOCK SPLITS Juniper Networks effected a three-for-two stock split of its common stock on June 27, 1997 and October 2, 1998 and a three-for-one stock split in the form of a 200% common stock dividend paid on January 14, 2000. All share and per share amounts have been adjusted to reflect the splits. NET LOSS PER SHARE Basic net loss per share and diluted net loss per share are presented in conformity with Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128), for all periods presented. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common stock and convertible preferred stock issued or granted for nominal consideration prior to the anticipated effective date of the initial public offering must be included in the calculation of basic and diluted net loss per common share as if they had been outstanding for all periods presented. To date, Juniper Networks has not had any issuances or grants for nominal consideration. In accordance with FAS 128, basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period, less the weighted-average number of shares of common stock issued to founders, investors and employees that are subject to repurchase (see Note 5). Basic and diluted pro forma net loss per share, as presented in the consolidated statements of operations, has been computed as described above and also gives effect, under Securities and Exchange Commission guidance, to the conversion of the convertible preferred stock (using the if-converted method) from the original date of issuance, using the initial public offering price of $11.33 per share to calculate the conversion ratio for Series D-1 convertible preferred stock. F-9 96 The following table presents the calculation of basic and diluted and pro forma basic and diluted net loss per share(in thousands, except per share amounts):
1999 1998 1997 -------- -------- -------- Net loss.............................................. $ (9,034) $(30,971) $(10,363) -------- -------- -------- BASIC AND DILUTED: Weighted-average shares of common stock outstanding...................................... 109,652 59,073 55,869 Less: weighted-average shares subject to repurchase....................................... (14,991) (20,202) (30,096) -------- -------- -------- Weighted-average shares used in computing basic and diluted net loss per share....................... 94,661 38,871 25,773 ======== ======== ======== Basic and diluted net loss per share................ $ (0.10) $ (0.80) $ (0.40) ======== ======== ======== PRO FORMA: Net loss............................................ $ (9,034) $(30,971) ======== ======== Shares used above................................... 94,661 38,871 Pro forma adjustment to reflect weighted effect of assumed conversion of convertible preferred stock............................................ 36,819 72,339 -------- -------- Shares used in computing pro forma basic and diluted net loss per common share (unaudited)............ 131,480 111,210 ======== ======== Pro forma basic and diluted net loss per common share (unaudited)................................ $ (0.07) $ (0.28) ======== ========
Juniper Networks has excluded all convertible preferred stock, warrants for convertible preferred stock, outstanding stock options and shares subject to repurchase from the calculation of diluted loss per share because all such securities are antidilutive for all periods presented. The total number of shares excluded from the calculations of diluted net loss per share were 68,288,000, 101,769,000 and 86,811,000 for the years ended December 31, 1999, 1998 and 1997, respectively. SEGMENT INFORMATION Juniper Networks has adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information" (FAS 131). Juniper Networks operates solely in one segment, the development and marketing of Internet infrastructure equipment, and therefore there is no impact to Juniper Networks' consolidated financial statements due to the adoption of FAS 131. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS 133, as amended, establishes methods for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. Juniper Networks is required to adopt FAS 133 effective January 1, 2001. Because Juniper Networks currently does not hold any derivative instruments and does not engage in hedging activities, Juniper Networks does not currently believe that the adoption of FAS 133, as amended, will have a significant impact on its financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the Staff's views in applying generally F-10 97 accepted accounting principles to revenue recognition in financial statements. Juniper Networks believes that its current revenue recognition principles comply with SAB 101. 2. CASH EQUIVALENTS, SHORT-TERM AND LONG-TERM INVESTMENTS Cash equivalents, short-term and long-term investments consist of the following (in thousands):
DECEMBER 31, 1999 ------------------------------------------------ GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE --------- ---------- ---------- ---------- Money market funds............................ $ 56,034 $ -- $ -- $ 56,034 Commercial paper.............................. 79,862 -- -- 79,862 Certificates of deposit....................... 66 -- -- 66 Government securities......................... 135,325 5 (181) 135,149 Corporate debt securities..................... 151,829 12 (651) 151,190 Asset-backed securities....................... 8,000 -- -- 8,000 -------- -------- -------- -------- $431,116 $ 17 $ (832) $430,301 ======== ======== ======== ======== Included in cash and cash equivalents......... $145,179 $ 6 $ -- $145,185 Included in short-term investments............ 188,170 11 (266) 187,915 Included in long-term investments............. 97,767 -- (566) 97,201 -------- -------- -------- -------- $431,116 $ 17 $ (832) $430,301 ======== ======== ======== ======== Due within one year........................... $333,349 $ 17 $ (266) $333,100 Due between one year and two years............ 94,500 -- (537) 93,963 Due between two years and three years......... 3,267 -- (29) 3,238 -------- -------- -------- -------- $431,116 $ 17 $ (832) $430,301 ======== ======== ======== ========
DECEMBER 31, 1998 ------------------------------------------------ GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE --------- ---------- ---------- ---------- Money market funds............................ $ 3,037 $ -- $ -- $ 3,037 Commercial paper.............................. 16,520 -- -- 16,520 -------- -------- -------- -------- $ 19,557 $ -- $ -- $ 19,557 ======== ======== ======== ======== Included in cash and cash equivalents......... $ 19,557 $ -- $ -- $ 19,557 ======== ======== ======== ========
F-11 98 3. PROPERTY AND EQUIPMENT, NET Property and equipment consist of the following (in thousands):
DECEMBER 31, ----------------- 1999 1998 ------- ------ Computers and equipment..................................... $14,953 $7,435 Purchased software.......................................... 4,252 2,540 Furniture and fixtures...................................... 1,383 594 ------- ------ Total....................................................... 20,588 10,569 Less accumulated depreciation and lease amortization........ (8,172) (2,867) ------- ------ Property and equipment , net................................ $12,416 $7,702 ======= ======
4. CAPITAL LEASE OBLIGATIONS Juniper Networks enters into various capital leases, including sale and leaseback transactions, to finance purchases of property and equipment. As of December 31, 1998, under various lease lines of credit, Juniper Networks had $1,891,000 available for future purchases of property and equipment that expired on June 30, 1999. Under the terms of certain lease agreements, warrants to purchase the Company's preferred stock were granted as described in Note 5. Capitalized costs of $8,470,000, and accumulated amortization of $905,000 are included in property and equipment at December 31, 1998. During the year ending December 31, 1999, Juniper Networks paid off all of the then outstanding capital lease balances. 5. STOCKHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK
SHARES ISSUED AND OUTSTANDING AT SHARES DECEMBER 31, INITIALLY ------------------------ AUTHORIZED 1999 1998 ---------- ---------- ---------- Series A......................................... 1,743,751 -- 1,743,751 Series B......................................... 3,915,308 -- 3,821,975 Series C......................................... 5,200,000 -- 5,151,178 Series D......................................... 600,000 -- -- Series D-1....................................... 2,580,000 -- -- ---------- ---------- ---------- Total preferred stock............................ 14,039,059 -- 10,716,904 ========== ========== ==========
All outstanding shares of Juniper Networks' convertible preferred stock automatically converted into 76,794,000 shares of Common Stock upon completion of Juniper Networks' initial public offering. As of December 31, 1999, 10,000,000 shares of convertible preferred stock remain authorized and available for issuance. F-12 99 WARRANTS Juniper Networks periodically grants warrants in connection with certain lease arrangements. Juniper Networks had the following warrants to purchase shares of preferred stock outstanding at December 31, 1998:
EXERCISE PRICE EXPIRATION OF NUMBER OF SHARES PREFERRED STOCK SERIES PER SHARE DATE ISSUED WARRANTS (PREFERRED STOCK) - ---------------------- --------- ------------- ------------- ----------------- Series B................. $2.40 December 1996 December 2003 83,333 Series B................. 2.40 June 1997 December 2003 10,000 Series C................. 8.93 June 1997 December 2003 23,516 ------- Total.............................................................. 116,849 =======
During the year ended December 31, 1999, all warrants were exercised for a total of approximately 779,000 shares of Common Stock. All of the warrants were exercisable immediately. The fair value of the warrants was amortized as interest expense in accordance with the lease payments. COMMON STOCK Juniper Networks is authorized to issue up to 200,000,000 shares of its common stock. At December 31, 1999 and 1998, 155,938,599 and 61,731,984 shares were issued and outstanding. Prior to the adoption of the 1996 Stock Option Plan, Juniper Networks issued shares of common stock to founders, investors, and employees. The shares issued to investors were fully vested upon purchase. Generally, shares issued to founders and employees were sold pursuant to restricted stock purchase agreements containing provisions established by the Board of Directors. These provisions give Juniper Networks the right to repurchase the shares at the original sales price. This right expires at the rate of 25% after one year and 2.0833% per month thereafter. At December 31, 1999 and 1998, 840,001 and 4,148,439 of these shares, issued outside of the 1996 Stock Option Plan, remained subject to repurchase. STOCK OPTION PLAN Juniper Networks' 1996 Stock Option Plan (the Plan) provides for the granting of incentive stock options to employees and nonstatutory stock options to employees, directors and consultants. Incentive stock options are granted at an exercise price of not less than the fair value per share of the common stock on the date of grant. Nonstatutory stock options may be granted at an exercise price of not less than 85% of the fair value per share on the date of grant; however, no statutory stock options have been granted for less than fair market value on the date of grant. Vesting and exercise provisions are determined by the Board of Directors. Options granted under the Plan generally become exercisable over a four-year period beginning on the date of grant. Options granted under the Plan have a maximum term of ten years. Options granted to consultants are in consideration for the fair value of services previously rendered, are not contingent upon future events and are expensed in the period of grant. Juniper Networks has authorized 57,562,500 shares of common stock for issuance under the Plan. At December 31, 1999, 1,896,356 shares were available for future option grants or stock sales under the Plan. F-13 100 Option activity under the Plan is summarized as follows:
OUTSTANDING OPTIONS ------------------------------ NUMBER WEIGHTED-AVERAGE OF SHARES EXERCISE PRICE ---------- ---------------- Options granted............................................ 5,393,250 $ 0.07 ---------- Balance at December 31, 1997............................... 5,393,250 0.07 Options granted............................................ 10,537,440 0.62 Options exercised.......................................... (4,521,948) 0.16 Options canceled........................................... (365,028) 0.09 ---------- Balance at December 31, 1998............................... 11,043,714 0.56 Options granted............................................ 16,837,006 33.76 Options exercised.......................................... (4,935,090) 1.13 Options canceled........................................... (476,465) 7.78 ---------- Balance at December 31, 1999............................... 22,469,165 25.11 ==========
The Plan also provides for the sale of shares of common stock to employees and consultants at the fair value per share of the common stock. Shares issued to consultants are for the fair value of services previously rendered and are not contingent upon future events. Shares sold to employees are made pursuant to restricted stock purchase agreements containing provisions established by the Board of Directors. These provisions give Juniper Networks the right to repurchase the shares at the original sales price. This right expires at a rate determined by the Board of Directors, generally at the rate of 25% after one year and 2.0833% per month thereafter. During the year ended December 31, 1997 and the period from inception (February 2, 1996) to December 31, 1996, Juniper Networks issued 10,717,299 and 14,522,652 shares under the Plan. No shares were issued under the Plan in the years ended December 31, 1999 and 1998. At December 31, 1999 and 1998, 9,158,052 and 14,055,312 shares were subject to repurchase rights under the Plan. At December 31, 1999 and 1998, 1,266,509 and 1,189,275 shares, respectively, had been repurchased under the Plan. The following schedule summarizes information about stock options outstanding as of December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------- ------------------------------ WEIGHTED-AVERAGE RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ------------------- ---------------- ----------- ---------------- $ 0.04-$ 0.56 4,648,857 8.22 $ 0.29 1,177,599 $ 0.24 $ 0.64-$ 4.67 5,294,415 9.01 $ 2.88 353,777 $ 1.77 $ 7.00-$ 9.33 4,715,349 9.39 $ 7.61 4,125 $ 7.00 $21.44-$ 60.71 6,666,345 9.76 $60.44 31,095 $21.44 $63.63-$112.57 1,144,199 9.89 $89.60 -- $ -- ---------- --------- $ 0.04-$112.57 22,469,165 9.19 $25.11 1,566,596 $ 1.03 ========== =========
As of December 31, 1998, 325,608 options are exercisable at an average exercise price of $0.05, and as of December 31, 1997, 79,980 options are exercisable at an average price of $0.01. During the year ended December 31, 1998 and the three months ended March 31, 1999, in connection with the grant of certain stock options to employees, Juniper Networks recorded F-14 101 deferred stock compensation of $6,388,000 and $1,114,000 representing the difference between the exercise price and the deemed fair value of Juniper Networks' common stock on the date such stock options were granted. Such amount is included as a reduction of stockholders' equity and is being amortized by charges to operations on a graded vesting method. Juniper Networks recorded amortization of deferred stock compensation expense of $3,266,000 and $1,235,000 for the years ended December 31, 1999 and 1998. At December 31, 1999 and 1998, Juniper Networks had a total of $3,001,000 and $5,153,000 remaining to be amortized over the corresponding vesting period of each respective option, generally four years. The amortization expense relates to options awarded to employees in all operating expense categories. This amount has not been separately allocated to these categories. EMPLOYEE STOCK PURCHASE PLAN In April 1999, the Board of Directors approved the adoption of Juniper Networks' 1999 Employee Stock Purchase Plan (the Purchase Plan). A total of 1,500,000 shares of common stock have been reserved for issuance under the 1999 Purchase Plan, plus, commencing on January 1, 2000, annual increases equal to the lesser of 1,500,000 shares, or 1% of the outstanding common shares on such date or a lesser amount determined by the Board of Directors. The 1999 Purchase Plan permits eligible employees to acquire shares of Juniper Networks' common stock through periodic payroll deductions of up to 10% of base compensation. No more than 3,000 shares may be purchased by each employee in any twelve month period, and in no event, may an employee purchase more than $25,000 worth of stock, determined at the fair market value of the shares at the time such option is granted, in one calendar year. The Purchase Plan will be implemented in a series of offering periods, each six months in duration; provided, however, that the first offering period will be approximately thirteen months in duration, ending on the last trading day on or before July 31, 2000. The price at which the common stock may be purchased is 85% of the lesser of the fair market value of Juniper Networks' common stock on the first day of the applicable offering period or on the last day of the respective offering period. STOCK-BASED COMPENSATION The Company has elected to follow APB 25 and related interpretations in accounting for its employee stock-based compensation plans. Because the exercise price of Juniper Networks' employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense was recognized. Pro forma information regarding net loss has been determined as if Juniper Networks had accounted for its employee stock options under the fair value method prescribed by FAS 123. The resulting effect on pro forma net loss disclosed is not likely to be representative of the effects on net income/(loss) on a pro forma basis in future years, due to subsequent years including additional grants and years of vesting. The fair value of each option granted through December 31, 1999 was estimated on the date of grant using the minimum value (before the Company went public) or the Black-Scholes method. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because Juniper Networks' stock-based awards have characteristics significantly different from those in traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock-based awards. The fair F-15 102 value of Juniper Networks' stock-based awards was estimated using the following weighted-average assumptions:
YEAR ENDED DECEMBER 31, ----------------------------------- 1999 1998 1997 --------- --------- --------- Dividend yield.................................... -- -- -- Volatility factor................................. 80% -- -- Risk-free interest rate........................... 5.49% 5.23% 6.20% Expected life..................................... 3.0 years 4.5 years 4.5 years Weighted-average fair value of options granted in the period...................................... $17.97 $0.37 $0.03
For purposes of pro forma disclosures, the estimated fair value of options is amortized to pro forma expense over the options' vesting period. Pro forma information follows (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- -------- -------- Net loss: As reported..................................... $ (9,034) $(30,971) $(10,363) Pro forma....................................... (43,488) (31,143) (10,403) Basic and diluted net loss per share: As reported..................................... (0.10) (0.80) (0.40) Pro forma....................................... (0.46) (0.80) (0.40)
COMMON STOCK RESERVED FOR FUTURE ISSUANCE The Company has reserved 25,865,521 shares of common stock for future issuance under its 1996 Stock Option Plan and 1999 Employee Stock Purchase Plan. 6. 401(K) PLAN Juniper Networks maintains a savings and retirement plan qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. All employees are eligible to participate on their first day of employment with Juniper Networks. Under the plan, employees may contribute up to 20% of their pretax salaries per year but not more than the statutory limits. Juniper Networks does not contribute to the plan. F-16 103 7. COMMITMENTS Juniper Networks leases its facilities under operating leases that expire in 2012. Rental expense for the years ended December 31, 1999, 1998 and 1997, were approximately $1,847,000, $937,000 and $529,000, respectively. Future minimum payments under the noncancellable operating leases consist of the following (in thousands):
DECEMBER 31, 1999 ------------ 2000........................................................ $ 3,892 2001........................................................ 5,401 2002........................................................ 4,660 2003........................................................ 4,762 2004........................................................ 4,898 Thereafter.................................................. 42,072 ------- Total minimum lease payments........................... $65,685 =======
Juniper Networks has outstanding purchase order commitments for production materials of approximately $6,357,000 and $2,442,000 at December 31, 1999 and 1998. Juniper Networks expects the purchase orders to be fulfilled in the first quarter of 2000. 8. INCOME TAXES Due to operating losses and the inability to recognize the benefits therefrom, there is no tax provision for the years ended December 31, 1997. For the year ended December 31, 1999 the provision for income taxes consists of the following (in thousands): Current Provision: Federal................................................... $ 700 State..................................................... 800 Foreign................................................... 925 ------ Total current provision..................................... $2,425 ======
The difference between the provision for income taxes and the amount computed by applying the Federal statutory income tax rate (35 percent) to loss before taxes is explained below (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------ 1999 1998 1997 ------- -------- ------- Tax provision (benefit) at federal statutory rate........ $(2,313) $(10,839) $(3,627) Federal alternative minimum tax.......................... 700 -- -- State taxes.............................................. 800 2 -- Foreign taxes............................................ 925 -- -- Unbenefitted net operating losses, reserves and accruals............................................... 2,313 10,839 3,627 ------- -------- ------- Total............................................... $ 2,425 $ 2 $ -- ======= ======== =======
F-17 104 Significant components of Juniper Networks' deferred tax assets are as follows (in thousands):
DECEMBER 31, -------------------- 1999 1998 -------- -------- Deferred tax assets: Net operating loss carryforwards......................... $ 14,000 $ 13,470 Research credit carryforwards............................ 2,830 1,490 Deferred revenue......................................... 6,200 2,700 Reserves and accruals not currently deductible........... 7,250 500 Other temporary differences.............................. 840 (110) -------- -------- Total deferred tax assets.................................. 31,120 18,050 Valuation allowance........................................ (31,120) (18,050) -------- -------- Net deferred tax assets.................................... $ -- $ -- ======== ========
FASB Statement No. 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company's historical operating performance and the reported cumulative net losses in all prior years, Juniper Networks has provided a full valuation allowance against its net deferred tax assets. The net valuation allowance increased by $13,070,000 during the year ended December 31, 1999 and increased by $12,850,000 during the year ended December 31, 1998, respectively. As of December 31, 1999 approximately $14,500,000 of the valuation allowance reflected above relates to the tax benefits of stock option deductions which will be credited to equity when realized. As of December 31, 1999, Juniper Networks had net operating loss carryforwards for federal and state tax purposes of approximately $37,000,000 and $32,000,000, respectively. Juniper Networks also had federal and state research and development tax credit carryforwards of approximately $1,700,000 and $1,700,000, respectively. The federal and state net operating loss carryforwards will expire at various dates beginning in year 2004, if not utilized. Utilization of the net operating losses and tax credits may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and tax credits before utilization. F-18 105 (THIS PAGE INTENTIONALLY LEFT BLANK) 106 APPENDIX -- DESCRIPTION OF GRAPHICS PROSPECTUS COVER Juniper Networks, Inc. Logo PAGE 32 Diagram showing areas of bottleneck when packet/cell switching and fiber optic technologies are deployed together. The left side of the diagram is labeled "Electronic Packet/Cell Switching" above pictures of computers. To the right of the diagram is the text "Electronic Packet/Cell Switching" above pictures of servers which are labeled "Servers." Between these pictures are links labeled "Fiber Optic Core" and the text "Bottleneck" at the edges of the Fiber Optic Core links. PAGE 34 Diagram showing a typical architecture for a service provider's network backbone, including the placement of network routes, switches and access concentration points. Diagram contains the text "Enterprise Routers," "DS3," "DS1," "DS0," "OC-12," "OC-3," "ATM," "OC-12 ATM or OC-12 SONET or OC-48 SONET," "Core Backbone," "Intra-POP," "Access," "Router," "Switch" and "Access Concentration Point." PAGE 37 Diagram showing traffic path between router points labeled "San Francisco" and "New York." Below the diagram is a legend of icons in the diagram which are labeled "Shortest path," "Traffic Engineered Path" and "Router." PAGE 39 Diagram showing the JUNOS Routing Engine with the text "Forwarding Table" contained in the diagram. Also includes a diagram below this diagram of the Packet Forwarding Engine containing the text "Forwarding Table," "Internet Processor," "Memory-based Switch Fabric" and "I/O Card." PROSPECTUS BACK COVER Juniper Networks, Inc. Logo 107 - --------------------------------------------------------- - --------------------------------------------------------- No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the convertible notes offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. ------------------ TABLE OF CONTENTS
Page ---- Prospectus Summary....................... 1 Risk Factors............................. 6 Note Regarding Forward-Looking Statements............................. 17 How We Intend to Use the Proceeds from this Offering.......................... 17 Price Range of Common Stock.............. 18 Dividend Policy.......................... 18 Capitalization........................... 19 Selected Consolidated Financial Data..... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 22 Business................................. 31 Management............................... 48 Certain Transactions..................... 55 Principal Stockholders................... 57 Description of Convertible Notes......... 60 Description of Capital Stock............. 74 Certain United States Federal Income and Estate Tax Consequences................ 75 Where You May Find Additional Information............................ 81 Legal Matters............................ 81 Experts.................................. 81 Underwriting............................. 82 Index to Consolidated Financial Statements................... F-1
- --------------------------------------------------------- - --------------------------------------------------------- --------------------------------------------------------- --------------------------------------------------------- $500,000,000 JUNIPER NETWORKS, INC. % Convertible Subordinated Notes due March 15, 2007 ------------------ LOGO ------------------ GOLDMAN, SACHS & CO. CREDIT SUISSE FIRST BOSTON ROBERTSON STEPHENS DAIN RAUSCHER WESSELS SG COWEN WARBURG DILLON READ LLC --------------------------------------------------------- --------------------------------------------------------- 108 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the convertible notes being registered. All amounts are estimates except the SEC registration fee and the NASD filing fee. SEC registration fee........................................ $151,800 NASD filing fee............................................. 30,500 Printing and engraving expenses............................. 150,000 Legal fees and expenses..................................... 300,000 Accounting fees and expenses................................ 75,000 Blue sky fees and expenses.................................. 3,000 Trustee fees................................................ 20,000 Miscellaneous fees and expenses............................. 69,700 -------- Total.................................................. $800,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by current law. Article Eighth of our Amended and Restated Certificate of Incorporation provides for the indemnification of directors and officers to the fullest extent permissible under Delaware law. Article VI of our Bylaws provides for the indemnification of officers, directors and third parties acting on behalf of Juniper Networks if such person acted in good faith and in a manner reasonably believed to be in and not opposed to our best interest, and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his or her conduct was unlawful. We have entered into indemnification agreements with our directors and officers, in addition to indemnification provided for in our Bylaws, and intend to enter indemnification agreements with any new directors and officers in the future. The indemnification agreements may require us, among other things, to indemnify our directors and officers against certain liabilities that may arise by reason of their status or service as directors and officers (other than liabilities arising from willful misconduct of culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors and officers insurance, if available on reasonable terms. Reference is also made to Section 8 of the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers and directors of Juniper Networks against certain liabilities. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since inception, we have issued unregistered securities to a limited number of persons as described below: 1. On February 6, 1996 we sold 4,050,000 shares of our common stock at an aggregate purchase price of $8,910.00. II-1 109 2. On April 15, 1996 we sold 225,000 shares of our common stock for an aggregate purchase price of $2,002.50. 3. On June 12, 1996 we sold 450,000 shares of our common stock for an aggregate purchase price of $20,025.40. 4. From inception through June 30, 1999, we granted stock options and restricted stock purchase rights to purchase an aggregate of 16,677,997 shares of our common stock at prices ranging from $0.11 to $28.00 per share to employees, consultants and directors pursuant to our 1996 Stock Plan. 5. From inception through June 30, 1999, we issued and sold an aggregate of 11,302,289 shares of our common stock to employees, consultants and directors for an aggregate consideration of $6,492,421 pursuant to exercise of options granted under our 1996 Stock Plan. 6. From inception through June 30, 1999 we issued an aggregate of 111,283 shares of our common stock under our 1996 Stock Plan to consultants in consideration for past services rendered for an aggregate value of $74,365.00. 7. On June 11, 1996 we sold 1,743,751 shares of Series A Preferred Stock for $1.00 per share to the following private investors for an aggregate purchase price of $1,743,751: Kleiner Perkins Caulfield & Byers Fund VII, KPBC Information Sciences Zaibatsu Fund II, Kleiner Perkins Caulfield & Byers VII and WS Investment Company 96A. 8. On June 11, 1996 we sold 6,328,123 shares of common stock for $0.44 per share to a the following private investors for an aggregate purchase price of $281,249.90: Kleiner Perkins Caulfield & Byers Fund VII, KPCB Information Sciences Zaibatsu Fund II, Kleiner Perkins Caulfield & Byers VII and WS Investments 96A. 9. On August 5, 1996 and November 18, 1996 we sold 3,818,017 shares of Series B Preferred Stock for $2.40 per share to the following private investors for an aggregate purchase price of $9,163,240.80: Benchmark Capital Partners, L.P., Benchmark Founders' Fund, L.P., Crosspoint Venture Partners 1996, Institutional Venture Management VII, L.P., IVP Founders Fund I, L.P., Institutional Venture Partners VI, L.P., KPCB Informational Sciences Zaibatsu Fund II, Kleiner Perkins Caulfield & Byers VII, Kriens 1996 Trust U/T/A October 29, 1996, McQuillan Consulting Self-Employed Profit Sharing Plan, NEA Presidents Fund L.P., NEA Ventures 1996, L.P., New Enterprise Associates VI, Limited Partnership, O'Brien Family Trust, U/T/A dated 7/1/92, Larry Sonsini, Stensrud Family Trust U/T/A September 16, 1993 and WS Investment Company 96B. 10. On December 16, 1996, in connection with an equipment lease, we issued a warrant to purchase 83,333 shares of our Series B Preferred Stock at an exercise price of $2.40 per share to Venture Lending & Leasing, Inc.. 11. On December 30, 1996 we issued 3,958 shares of Series B Preferred Stock at $2.40 per share to William Gunning and Florin Oprescu as consideration for past services rendered. 12. On June 18, 1997, in connection with a lease agreement, we issued a warrant to purchase 10,000 shares of our Series B Preferred Stock at an exercise price of $2.40 per share to Excite@Home, a lessor of real property. 13. On July 1, 1997 and September 30, 1997 we sold 5,151,178 shares of our Series C Preferred Stock at $8.93 per share to the following private investors for an aggregate purchase price of $46,000,020: 3Com Corporation, Anschutz Family Investment Company LLC, AT&T Venture Fund II., L.P., Crosspoint Venture Partners 1996, Ericsson Business II-2 110 Networks AB, Lucent Technologies Inc., Newbridge Networks Corporation, Nortel Networks Corporation and UUNet Technologies, Inc. 14. On September 30, 1997, in connection with an equipment lease, we issued a warrant to purchase 23,516 shares of our Series C Preferred Stock at an exercise price of $8.93 per share to Venture Lending & Leasing, Inc. 15. On March 3, 1999 we issued 130,000 shares of common stock to an employee at an exercise price of $9.90 per share pursuant to a restricted stock purchase agreement. 16. On March 16, 1999 we sold 500,000 shares of our Series D Preferred Stock and 2,580,000 shares of our Series D-1 Preferred Stock both for $11.03 per share to Ericsson Business Networks AB for an aggregate purchase price of $33,972,400. For additional information concerning these equity investment transactions, reference is made to the information contained under the caption "Certain Transactions" in the form of prospectus included herein. Except as indicated above, none of the foregoing transactions involved any underwriters, underwriting discounts or commissions or any public offering, and we believe that each transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients in such transactions represented their intention to acquire the securities for investment only and not with a view to or for resale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 1.1* Form of Underwriting Agreement 3.1** Amended and Restated Certificate of Incorporation of the Registrant 3.3 Amended and Restated Bylaws of the Registrant 4.1* Form of Registrant's Convertible Note 4.2** Third Amended and Restated Registration Rights Agreement dated March 9, 1999 4.3 Form of Indenture by and between the Registrant and Norwest Bank Minnesota, N.A. 5.1* Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation 10.1** Form of Indemnification Agreement entered into by the Registrant with each of its directors, officers and certain employees 10.2** Amended and Restated 1996 Stock Plan 10.3** 1999 Employee Stock Purchase Plan 10.4** Sublease between Trident Microsystems, Inc. and the Registrant dated July 1, 1998 10.5** Sublease between At Home Corporation and the Registrant dated June 4, 1998 10.6** Change of Control Agreement between Scott Kriens and the Registrant dated October 1, 1996 10.7** Change of Control Agreement between Marcel Gani and the Registrant dated February 18, 1997
II-3 111
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 10.8*** Agreement for ASIC Design and Purchase of Products between IBM Microelectronics and the Registrant dated August 26, 1997 10.8.1*** Amendment One to Agreement for ASIC Design and Purchase of Products between IBM Microelectronics and the Registrant dated January 5, 1998 10.8.2*** Amendment Two to Agreement for ASIC Design and Purchase of Products between IBM Microelectronics and the Registrant dated March 2, 1998 10.9*** Standard Manufacturing Agreement between Solectron California Corporation, Fine Pitch Technology Inc. and the Registrant dated June 10, 1998 10.10** Lease between Mathilda Associates LLC and the Registrant dated June 18, 1999 21.1**** Subsidiaries of Registrant 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2* Consent of Counsel. Reference is made to Exhibit 5.1. 23.3**** Consent of International Data Corporation 23.4**** Consent of Ryan, Hankin, Kent, Inc. 24.1 Power of Attorney (see page II-6) 25.1**** Form T-1 Statement of Eligibility of Trustee for Indenture under the Trust Indenture Act of 1939. 27.1**** Financial Data Schedule
- --------------- * To be filed by amendment. ** Incorporated by reference herein to the Registration Statement of Form S-1 and all amendments thereto filed with the Securities and Exchange Commission on April 21, 1999 and declared effective June 24, 1999. *** Confidential treatment requested and received as to certain portions. These exhibits are incorporated by reference herein to the Registration Statement of Form S-1 and all amendments thereto filed with the Securities and Exchange Commission on April 21, 1999 and declared effective June 24, 1999. **** Previously filed. (b) FINANCIAL STATEMENT SCHEDULES The following financial statement schedule of Juniper Networks is filed as part of this Report and should be read in conjunction with the Financial Statements of Juniper Networks.
SCHEDULE DESCRIPTION - -------- --------------------------------- II Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS Insofar as indemnification by us for liabilities arising under the Securities Act may be permitted to our directors, officers and certain employees pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore unenforceable. In the event of a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or other covered employee of Juniper Networks in the successful II-4 112 defense of any action, suit or proceeding) is asserted by a director, officer or other covered employee in connection with the securities being registered hereunder, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. We hereby undertake that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance on Rule 430A and contained in a form of Prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 113 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, State of California, on the twenty-third day of February, 2000. JUNIPER NETWORKS, INC. By: * ------------------------------------ Scott Kriens President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENT, that the persons whose signatures appear below each severally constitutes and appoints Marcel Gani and Lisa C. Berry, and each of them, as true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for them in their name, place and stead, in any and all capacities, to sign any and all amendments (including pre-effective and post-effective amendments) to this Registration Statement and to sign any registration statement (and any post-effective amendments thereto) relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- * President, Chief Executive Officer February 23, 2000 - --------------------------------------------- and Chairman of the Board Scott Kriens (Principal Executive Officer) * Chief Financial Officer (Principal February 23, 2000 - --------------------------------------------- Financial and Accounting Officer) Marcel Gani * Chief Technical Officer and Vice February 23, 2000 - --------------------------------------------- Chairman of Board Pradeep Sindhu * Director February 23, 2000 - --------------------------------------------- William R. Hearst III * Director February 23, 2000 - --------------------------------------------- Vinod Khosla * Director February 23, 2000 - --------------------------------------------- C. Richard Kramlich * Director February 23, 2000 - --------------------------------------------- William Stensrud * /s/ LISA C. BERRY Attorney-in-Fact February 23, 2000 - ------------------------------------------ Lisa C. Berry
II-6 114 JUNIPER NETWORKS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (IN THOUSANDS)
BALANCE AT CHARGED TO BEGINNING COSTS AND BALANCE AT DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR ----------- ---------- ---------- ---------- ----------- Year ended December 31, 1999 Allowance for doubtful accounts................ $ -- $632 $ -- $632 Year ended December 31, 1998 Allowance for doubtful accounts................ $ -- $ -- $ -- $ -- Year ended December 31, 1997 Allowance for doubtful accounts................ $ -- $ -- $ -- $ --
115 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 1.1* Form of Underwriting Agreement 3.1** Amended and Restated Certificate of Incorporation of the Registrant 3.3 Amended and Restated Bylaws of the Registrant 4.1* Form of Registrant's Convertible Note 4.2** Third Amended and Restated Registration Rights Agreement dated March 9, 1999 4.3 Form of Indenture by and between the Registrant and Norwest Bank Minnesota, N.A. 5.1* Opinion of Wilson Sonsini Goodrich & Rosati Professional Corporation 10.1** Form of Indemnification Agreement entered into by the Registrant with each of its directors, officers and certain employees 10.2** Amended and Restated 1996 Stock Plan 10.3** 1999 Employee Stock Purchase Plan 10.4** Sublease between Trident Microsystems, Inc. and the Registrant dated July 1, 1998 10.5** Sublease between At Home Corporation and the Registrant dated June 4,1998 10.6** Change of Control Agreement between Scott Kriens and the Registrant dated October 1, 1996 10.7** Change of Control Agreement between Marcel Gani and the Registrant dated February 18, 1997 10.8*** Agreement for ASIC Design and Purchase of Products between IBM Microelectronics and the Registrant dated August 26, 1997 10.8.1*** Amendment One to Agreement for ASIC Design and Purchase of Products between IBM Microelectronics and the Registrant dated January 5, 1998 10.8.2*** Amendment Two to Agreement for ASIC Design and Purchase of Products between IBM Microelectronics and the Registrant dated March 2, 1998 10.9*** Standard Manufacturing Agreement between Solectron California Corporation, Fine Pitch Technology Inc. and the Registrant dated June 10, 1998 10.10** Lease between Mathilda Associates LLC and the Registrant dated June 18, 1999 21.1**** Subsidiaries of Registrant 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2* Consent of Counsel. Reference is made to Exhibit 5.1. 23.3**** Consent of International Data Corporation 23.4**** Consent of Ryan, Hankin, Kent, Inc. 24.1 Power of Attorney (see page II-6) 25.1**** Form T-1 Statement of Eligibility of Trustee for Indenture Under the Trust Indenture Act of 1939. 27.1**** Financial Data Schedule
116 - --------------- * To be filed by amendment. ** Incorporated by reference herein to the Registration Statement of Form S-1 and all amendments thereto filed with the Securities and Exchange Commission on April 21, 1999 and declared effective June 24, 1999. *** Confidential treatment requested and received as to certain portions. These exhibits are incorporated by reference herein to the Registration Statement of Form S-1 and all amendments thereto filed with the Securities and Exchange Commission on April 21, 1999 and declared effective June 24, 1999. **** Previously filed. EX-3.3 2 EX-3.3 1 EXHIBIT 3.3 BYLAWS OF JUNIPER NETWORKS, INC. A DELAWARE CORPORATION 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I CORPORATE OFFICES......................................................................1 1.1 REGISTERED OFFICE.................................................................1 1.2 OTHER OFFICES.....................................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS..............................................................1 2.1 PLACE OF MEETINGS.................................................................1 2.2 ANNUAL MEETING....................................................................1 2.3 SPECIAL MEETING...................................................................1 2.4 NOTICE OF STOCKHOLDERS' MEETINGS..................................................2 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS...................2 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE......................................3 2.7 QUORUM............................................................................3 2.8 ADJOURNED MEETING; NOTICE.........................................................4 2.9 VOTING............................................................................4 2.10 WAIVER OF NOTICE..................................................................4 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...........................4 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.......................5 2.13 PROXIES...........................................................................5 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE.............................................6 2.15 CONDUCT OF BUSINESS...............................................................6 ARTICLE III DIRECTORS............................................................................6 3.1 POWERS............................................................................6 3.2 NUMBER............................................................................7 3.3 CLASSES OF DIRECTORS..............................................................7 3.4 RESIGNATION AND VACANCIES.........................................................7 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..........................................8 3.6 REGULAR MEETINGS..................................................................8 3.7 SPECIAL MEETINGS; NOTICE..........................................................8 3.8 QUORUM............................................................................9 3.9 WAIVER OF NOTICE..................................................................9 3.10 ADJOURNED MEETING; NOTICE.........................................................9 3.11 CONDUCT OF BUSINESS...............................................................9 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................10 3.13 FEES AND COMPENSATION OF DIRECTORS...............................................10 3.14 REMOVAL OF DIRECTORS.............................................................10
-i- 3 TABLE OF CONTENTS (CONTINUED)
PAGE ---- ARTICLE IV COMMITTEES...........................................................................10 4.1 COMMITTEES OF DIRECTORS..........................................................10 4.2 COMMITTEE MINUTES................................................................11 4.3 MEETINGS AND ACTION OF COMMITTEES................................................11 ARTICLE V OFFICERS..............................................................................12 5.1 OFFICERS.........................................................................12 5.2 APPOINTMENT OF OFFICERS..........................................................12 5.3 REMOVAL AND RESIGNATION OF OFFICERS..............................................12 5.4 CHAIRMAN OF THE BOARD............................................................12 5.5 CHIEF EXECUTIVE OFFICER..........................................................13 5.6 PRESIDENT........................................................................13 5.7 VICE PRESIDENT...................................................................13 5.8 SECRETARY........................................................................13 5.9 CHIEF FINANCIAL OFFICER..........................................................14 5.10 ASSISTANT SECRETARY..............................................................14 5.11 AUTHORITY AND DUTIES OF OFFICERS.................................................15 ARTICLE VI INDEMNITY............................................................................15 6.1 THIRD PARTY ACTIONS..............................................................15 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION....................................15 6.3 SUCCESSFUL DEFENSE...............................................................16 6.4 DETERMINATION OF CONDUCT.........................................................16 6.5 PAYMENT OF EXPENSES IN ADVANCE...................................................16 6.6 INDEMNITY NOT EXCLUSIVE..........................................................16 6.7 INSURANCE INDEMNIFICATION........................................................17 6.8 THE CORPORATION..................................................................17 6.9 EMPLOYEE BENEFIT PLANS...........................................................17 6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES......................17 ARTICLE VII RECORDS AND REPORTS.................................................................18 7.1 MAINTENANCE AND INSPECTION OF RECORDS............................................18 7.2 INSPECTION BY DIRECTORS..........................................................18 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................................18 ARTICLE VIII GENERAL MATTERS....................................................................19 8.1 CHECKS...........................................................................19 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.................................19
-ii- 4 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES...........................................19 8.4 SPECIAL DESIGNATION ON CERTIFICATES..............................................20 8.5 LOST CERTIFICATES................................................................20 8.6 CONSTRUCTION; DEFINITIONS........................................................20 8.7 DIVIDENDS........................................................................20 8.8 FISCAL YEAR......................................................................21 8.9 SEAL.............................................................................21 8.10 TRANSFER OF STOCK................................................................21 8.11 STOCK TRANSFER AGREEMENTS........................................................21 8.12 REGISTERED STOCKHOLDERS..........................................................21 ARTICLE IX AMENDMENTS...........................................................................22 ARTICLE X DISSOLUTION...........................................................................22 ARTICLE XI CUSTODIAN............................................................................22 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES......................................22 11.2 DUTIES OF CUSTODIAN..............................................................23 ARTICLE XII LOANS TO OFFICERS...................................................................23
-iii- 5 AMENDED AND RESTATED BYLAWS OF JUNIPER NETWORKS, INC. ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the Corporation shall be 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware, 19801. The name of the registered agent of the Corporation at such location is The Corporation Trust Company. 1.2 OTHER OFFICES The board of directors may at any time establish other offices at any place or places where the Corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation. 2.2 ANNUAL MEETING The annual meeting of stockholders shall be held each year on a date and at a time designated by the board of directors. At the meeting, directors shall be elected and any other proper business may be transacted. 2.3 SPECIAL MEETING A special meeting of the stockholders may be called at any time by the (i) board of directors, (ii) the chairman of the board, (iii) the president, or (iv) the chief executive officer. Prior to such time as a Registration Statement regarding the sale of the Corporation's Common Stock to the public is declared effective by the Securities and Exchange Commission, a special meeting of the stockholders may be called at any time by one or more stockholders holding a majority of the outstanding voting shares. If a special meeting is called by any person other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to 6 be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons who called the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS To be properly brought before an annual meeting or special meeting, nominations for the election of director or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. For such nominations or other business to be considered properly brought before the meeting by a stockholder, such stockholder must have given timely written notice and in proper form of his intent to bring such business before such meeting. To be timely, such stockholder's notice must be delivered to or mailed and received by the secretary of the Corporation not less than one hundred twenty (120) days prior to the date of the Corporation's proxy statement released to stockholders in connection with the Corporation's previous year's annual meeting of stockholders. To be in proper form, a stockholder's notice to the secretary shall set forth: (i) the name and address of the stockholder who intends to make the nominations, propose the business, and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; -2- 7 (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice; (iii) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and (v) if applicable, the consent of each nominee to serve as director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.7 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairman of the meeting, or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. -3- 8 When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provisions of the statutes or of the Certificate of Incorporation, a different vote is required, in which case such express provision shall govern and control the decision of the question. 2.8 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Sections 2.12 and 2.14 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. 2.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Notwithstanding the following provisions of this Section 2.11, effective upon the listing of the Common Stock of the Corporation on the Nasdaq Stock Market and the registration of any class of securities of the Corporation pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the stockholders of the Corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting. Except as otherwise provided in this Section 2.11, any action required by this chapter to be taken at any annual or special meeting of stockholders of a Corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is -4- 9 signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If the board of directors does not so fix a record date, the fixing of such record date shall be governed by the provisions of Section 213 of the General Corporation Law of Delaware. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. 2.13 PROXIES Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the Corporation, but no such proxy shall be voted or acted upon after 3 years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder -5- 10 or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of a Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The stock ledger shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder. 2.15 CONDUCT OF BUSINESS Meetings of stockholders shall be presided over by the chairman of the board, if any, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the board of directors, or in the absence of such designation by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and conduct of business. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. -6- 11 3.2 NUMBER The authorized number of directors of the Corporation shall be six (6). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 CLASSES OF DIRECTORS At such time as a Registration Statement regarding the sale of the Corporation's Common Stock to the public is declared effective by the Securities and Exchange Commission, the Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I Directors shall expire and Class I Directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II Directors shall expire and Class II Directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class III Directors shall expire and Class III Directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, Directors shall be elected for a full term of three years to succeed the Directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this Article, each Director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the Corporation. Stockholders may remove directors with or without cause. Any vacancy occurring in the board of directors with or without cause may be filled by a majority of the remaining members of the board of directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he has replaced. Unless otherwise provided in the Certificate of Incorporation or these Bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. -7- 12 (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The board of directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. -8- 13 Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least 4 days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation. 3.8 QUORUM At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. 3.9 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. 3.10 ADJOURNED MEETING; NOTICE If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. 3.11 CONDUCT OF BUSINESS Meetings of the board of directors shall be presided over by the chairman of the board, if any, or in his absence by the chief executive officer, or in their absence by a chairman chosen at the meeting. The secretary shall act as secretary of the meeting, but in his absence the chairman of the -9- 14 meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting shall determine the order of business and the procedures at the meeting. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.13 FEES AND COMPENSATION OF DIRECTORS Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. 3.14 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. If at any time a class or series of shares is entitled to elect one or more directors, the provisions of this Article 3.14 shall apply to the vote of that class or series and not to the vote of the outstanding shares as a whole. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the Corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in the Bylaws of the Corporation, shall have and may exercise -10- 15 all the powers and authority of the board of directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment and notice of adjournment), Section 3.11 (conduct of business) and 3.12 (action without a meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the board of directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. -11- 16 ARTICLE V OFFICERS 5.1 OFFICERS The officers of the Corporation shall be a chief executive officer, one or more vice presidents, a secretary and a chief financial officer. The Corporation may also have, at the discretion of the board of directors, a chairman of the board, a president, a chief operating officer, one or more executive, senior or assistant vice presidents, assistant secretaries and any such other officers as may be appointed in accordance with the provisions of Section 5.2 of these Bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS Except as otherwise provided in this Section 5.2, the officers of the Corporation shall be appointed by the board of directors, subject to the rights, if any, of an officer under any contract of employment. The board of directors may appoint, or empower an officer to appoint, such officers and agents of the business as the Corporation may require (whether or not such officer or agent is described in this Article V), each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the board of directors may from time to time determine. Any vacancy occurring in any office of the Corporation shall be filled by the board of directors or may be filled by the officer, if any, who appointed such officer. 5.3 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors or, in the case of an officer appointed by another officer, by such other officer. Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. 5.4 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these Bylaws. If there -12- 17 is no chief executive officer, then the chairman of the board shall also be the chief executive officer of the Corporation and shall have the powers and duties prescribed in Section 5.5 of these Bylaws. 5.5 CHIEF EXECUTIVE OFFICER The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board at all meetings of the Board of Directors. He or she shall have the general powers and duties of management usually vested in the chief executive officer of a Corporation, including general supervision, direction and control of the business and supervision of other officers of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. The Chief Executive Officer shall, without limitation, have the authority to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. 5.6 PRESIDENT Subject to such supervisory powers as may be given by these Bylaws or the Board of Directors to the Chairman of the Board or the Chief Executive Officer, if there be such officers, the president shall have general supervision, direction and control of the business and supervision of other officers of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. In the event a Chief Executive Officer shall not be appointed, the President shall have the duties of such office. 5.7 VICE PRESIDENT In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the chief executive officer and when so acting shall have all the powers of, and be subject to all the restrictions upon, the chief executive officer. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these Bylaws, the chief executive officer or the chairman of the board. 5.8 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall -13- 18 show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the board of directors required to be given by law or by these Bylaws. He shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these Bylaws. 5.9 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the Corporation as may be ordered by the board of directors, shall render to the chief executive officer and directors, whenever they request it, an account of all of his transactions as treasurer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these Bylaws. 5.10 ASSISTANT SECRETARY The assistant secretary, or, if there is more than one, the assistant secretaries in the order determined by the stockholders or board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors or the stockholders may from time to time prescribe. -14- 19 5.11 AUTHORITY AND DUTIES OF OFFICERS In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the board of directors or the stockholders. ARTICLE VI INDEMNITY 6.1 THIRD PARTY ACTIONS The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by an agent of the Corporation), or is or was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as a director or officer of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by an agent of the Corporation), or is or was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as an employee or agent of another corporation, partnership, joint venture trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, to procure a judgment in its favor by reason of the fact that he is or was a director or officer of Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in manner he reasonably believed to be in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and except -15- 20 that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. The Corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, to procure a judgment in its favor by reason of the fact that he is or was an employee or agent of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorney's fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in manner he reasonably believed to be in or not opposed to the best interests of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Delaware Court of Chancery or such other court shall deem proper. 6.3 SUCCESSFUL DEFENSE To the extent that a director, officer, employee or agent of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 6.4 DETERMINATION OF CONDUCT Any indemnification under Sections 6.1 and 6.2 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that the indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such determination shall be made (1) by the board of Directors or the Executive Committee by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) or if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. 6.5 PAYMENT OF EXPENSES IN ADVANCE Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI. 6.6 INDEMNITY NOT EXCLUSIVE The indemnification and advancement of expenses provided or granted pursuant to the other subsections of this section shall not be deemed exclusive of any other rights or limiting any other rights to which those seeking indemnification or advancement of expenses may be entitled under any by-law, certificate of incorporation, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another while holding such office. -16- 21 6.7 INSURANCE INDEMNIFICATION The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, any predecessor of the Corporation, or any subsidiary of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.8 THE CORPORATION For purposes of this Article VI, references to "the Corporation" shall include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under and subject to the provisions of this Article VI (including, without limitation the provisions of Section 6.4) with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. 6.9 EMPLOYEE BENEFIT PLANS For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VI. 6.10 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES The indemnification and advanced of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. -17- 22 ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The Corporation shall, either at its principal executive office or at such place or places as designated by the board of directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the chief executive officer, any vice president, the chief financial officer, the secretary or assistant secretary of this Corporation, or any other person authorized by the board of directors or the chief executive officer or a vice president, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. -18- 23 ARTICLE VIII GENERAL MATTERS 8.1 CHECKS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS The board of directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the board of directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend -19- 24 on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and"or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and"or rights. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a Corporation and a natural person. 8.7 DIVIDENDS The directors of the Corporation, subject to any restrictions contained in the Certificate of Incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock. -20- 25 The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies. 8.8 FISCAL YEAR The fiscal year of the Corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors. 8.9 SEAL The Corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. -21- 26 ARTICLE IX AMENDMENTS The original or other Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the board of directors of the Corporation that the Corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the Corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the Corporation shall be dissolved. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the Corporation is insolvent, to be receivers, of and for the Corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or -22- 27 (ii) the business of the Corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the Corporation that the required vote for action by the board of directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the Corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the Corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. ARTICLE XII LOANS TO OFFICERS The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiaries, including any officer or employee who is a Director of the Corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the Corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Bylaw shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. -23- EX-4.3 3 EX-4.3 1 EXHIBIT 4.3 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION................................1 SECTION 1.1 Definitions.........................................................1 SECTION 1.2 Compliance Certificates And Opinions................................9 SECTION 1.3 Form of Documents Delivered to the Trustee.........................10 SECTION 1.4 Acts of Holders of Securities......................................11 SECTION 1.5 Notices, Etc to the Trustee and Company............................13 SECTION 1.6 Notice to Holders of Securities; Waiver............................13 SECTION 1.7 Effect of Headings and Table of Contents...........................14 SECTION 1.8 Successors and Assigns.............................................14 SECTION 1.9 Separability Clause................................................14 SECTION 1.10 Benefits of Indenture..............................................14 SECTION 1.11 Governing Law......................................................14 SECTION 1.12 Legal Holidays.....................................................14 SECTION 1.13 Conflict With Trust Indenture Act..................................15 ARTICLE II SECURITY FORMS.......................................................................15 SECTION 2.1 Form Generally.....................................................15 SECTION 2.2 Form of Security...................................................16 SECTION 2.3 Form of Certificate of Authentication..............................28 SECTION 2.4 Form of Conversion Notice..........................................29 SECTION 2.5 Form of Assignment.................................................30 ARTICLE III THE SECURITIES......................................................................31 SECTION 3.1 Title and Terms....................................................31 SECTION 3.2 Denominations......................................................31 SECTION 3.3 Execution, Authentication, Delivery and Dating.....................32 SECTION 3.4 Global Securities; Non-global Securities; Book-entry Provisions.........................................................32 SECTION 3.5 Registration; Registration of Transfer and Exchange; Restrictions on Transfer...........................................34 SECTION 3.6 Mutilated, Destroyed, Lost or Stolen Securities....................35 SECTION 3.7 Payment of Interest; Interest Rights Preserved.....................36 SECTION 3.8 Persons Deemed Owners..............................................37 SECTION 3.9 Cancellation.......................................................37 SECTION 3.10 Computation of Interest............................................37 SECTION 3.11 CUSIP Numbers......................................................37 ARTICLE IV SATISFACTION AND DISCHARGE...........................................................37 SECTION 4.1 Satisfaction And Discharge of Indenture............................37
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PAGE ---- SECTION 4.2 Application of Trust Money.........................................39 ARTICLE V REMEDIES..............................................................................39 SECTION 5.1 Events of Default..................................................39 SECTION 5.2 Acceleration of Maturity; Rescission and Annulment.................41 SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee............................................................42 SECTION 5.4 Trustee May File Proofs of Claim...................................42 SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities.........................................................43 SECTION 5.6 Application of Money Collected.....................................43 SECTION 5.7 Limitation on Suits................................................44 SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert................................44 SECTION 5.9 Restoration of Rights and Remedies.................................45 SECTION 5.10 Rights and Remedies Cumulative.....................................45 SECTION 5.11 Delay or Omission Not Waiver.......................................45 SECTION 5.12 Control by Holders of Securities...................................45 SECTION 5.13 Waiver of Past Defaults............................................46 SECTION 5.14 Undertaking for Costs..............................................46 SECTION 5.15 Waiver of Stay, Usury or Extension Laws............................46 ARTICLE VI THE TRUSTEE..........................................................................47 SECTION 6.1 Certain Duties and Responsibilities................................47 SECTION 6.2 Notice of Defaults.................................................48 SECTION 6.3 Certain Rights of Trustee..........................................48 SECTION 6.4 Not Responsible for Recitals or Issuance of Securities.............49 SECTION 6.5 May Hold Securities, Act as Trustee under Other Indentures.........................................................49 SECTION 6.6 Money Held in Trust................................................49 SECTION 6.7 Compensation and Reimbursement.....................................50 SECTION 6.8 Corporate Trustee Required; Eligibility............................50 SECTION 6.9 Resignation and Removal; Appointment of Successor..................51 SECTION 6.10 Acceptance of Appointment by Successor.............................52 SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business...........................................................52 SECTION 6.12 Authenticating Agents..............................................53 SECTION 6.13 Disqualification; Conflicting Interests............................54 SECTION 6.14 Preferential Collection of Claims Against Company..................54 ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE................................54 SECTION 7.1 Company May Consolidate, Etc.......................................54 SECTION 7.2 Successor Substituted..............................................55
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PAGE ---- ARTICLE VIII SUPPLEMENTAL INDENTURES............................................................55 SECTION 8.1 Supplemental Indentures Without Consent of Holders of Securities...55 SECTION 8.2 Supplemental Indentures with Consent of Holders of Securities......56 SECTION 8.3 Execution of Supplemental Indentures...............................57 SECTION 8.4 Effect of Supplemental Indentures..................................57 SECTION 8.5 Reference in Securities to Supplemental Indentures.................58 SECTION 8.6 Notice of Supplemental Indentures..................................58 ARTICLE IX MEETINGS OF HOLDERS OF SECURITIES....................................................58 SECTION 9.1 Purposes for Which Meetings May Be Called..........................58 SECTION 9.2 Call, Notice and Place of Meetings.................................58 SECTION 9.3 Persons Entitled to Vote at Meetings...............................59 SECTION 9.4 Quorum; Action.....................................................59 SECTION 9.5 Determination of Voting Rights; Conduct and Adjournment of Meetings........................................................59 SECTION 9.6 Counting Votes and Recording Action of Meetings....................60 ARTICLE X COVENANTS.............................................................................61 SECTION 10.1 Payment of Principal, Premium and Interest.........................61 SECTION 10.2 Maintenance of Offices or Agencies.................................61 SECTION 10.3 Money for Security Payments to Be Held in Trust....................62 SECTION 10.4 Existence..........................................................63 SECTION 10.5 Maintenance of Properties..........................................63 SECTION 10.6 Payment of Taxes and Other Claims..................................63 SECTION 10.7 Reserved...........................................................63 SECTION 10.8 Statement by Officers as to Default................................63 SECTION 10.9 Reserved...........................................................64 SECTION 10.10 Reserved...........................................................64 SECTION 10.11 Reserved...........................................................64 SECTION 10.12 Waiver of Certain Covenants........................................64 ARTICLE XI REDEMPTION OF SECURITIES.............................................................64 SECTION 11.1 Right of Redemption................................................64 SECTION 11.2 Applicability of Article...........................................65 SECTION 11.3 Election to Redeem; Notice to Trustee..............................65 SECTION 11.4 Selection by Trustee of Securities to Be Redeemed..................65 SECTION 11.5 Notice of Redemption...............................................65 SECTION 11.6 Deposit of Redemption Price........................................66 SECTION 11.7 Securities Payable on Redemption Date..............................66
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PAGE ---- SECTION 11.8 Conversion Arrangement on Call for Redemption......................67 ARTICLE XII CONVERSION OF SECURITIES............................................................68 SECTION 12.1 Conversion Privilege and Conversion Rate...........................68 SECTION 12.2 Exercise of Conversion Privilege...................................68 SECTION 12.3 Fractions of Shares................................................69 SECTION 12.4 Adjustment of Conversion Rate......................................70 SECTION 12.5 Notice of Adjustments of Conversion Rate...........................74 SECTION 12.6 Notice of Certain Corporate Action.................................75 SECTION 12.7 Company to Reserve Common Stock....................................76 SECTION 12.8 Taxes on Conversions...............................................76 SECTION 12.9 Covenant as to Common Stock........................................76 SECTION 12.10 Cancellation of Converted Securities...............................76 SECTION 12.11 Provision in Case of Consolidation, Merger or Sale of Assets.............................................................76 SECTION 12.12 Rights Issued in Respect of Common Stock...........................77 SECTION 12.13 Responsibility of Trustee for Conversion Provisions................78 ARTICLE XIII SUBORDINATION OF SECURITIES........................................................78 SECTION 13.1 Securities Subordinate to Senior Debt..............................78 SECTION 13.2 No Payment in Certain Circumstances, Payment over of Proceeds upon Dissolution, Etc...................................................79 SECTION 13.3 Prior Payment to Senior Debt upon Acceleration of Securities.......81 SECTION 13.4 Payment Permitted If No Default....................................81 SECTION 13.5 Subrogation to Rights of Holders of Senior Debt....................81 SECTION 13.6 Provisions Solely to Define Relative Rights........................82 SECTION 13.7 Trustee to Effectuate Subordination................................82 SECTION 13.8 No Waiver of Subordination Provisions..............................82 SECTION 13.9 Notice to Trustee..................................................82 SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent.....83 SECTION 13.11 Trustee Not Fiduciary for Holders of Senior Debt...................84 SECTION 13.12 Reliance by Holders of Senior Debt on Subordination Provisions.....84 SECTION 13.13 Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights...................................................84 SECTION 13.14 Article Applicable to Paying Agents................................84 SECTION 13.15 Certain Conversions and Repurchases Deemed Payment.................84 ARTICLE XIV REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE IN CONTROL.......85 SECTION 14.1 Right to Require Repurchase........................................85
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PAGE ---- SECTION 14.2 Conditions to the Company's Election to Pay the Repurchase Price in Common Stock....................................................86 SECTION 14.3 Notices; Method of Exercising Repurchase Right, Etc................86 SECTION 14.4 Certain Definitions................................................89 SECTION 14.5 Consolidation, Merger, etc.........................................90 ARTICLE XV HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE.......................91 SECTION 15.1 Company to Furnish Trustee Names and Addresses of Holders..........91 SECTION 15.2 Preservation of Information........................................91 SECTION 15.3 Reserved...........................................................92 SECTION 15.4 Reports by Trustee.................................................92 SECTION 15.5 Reports by Company.................................................92 ARTICLE XVI IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS.....................92 SECTION 16.1 Indenture and Securities Solely Corporate Obligations..............92
-v- 6 INDENTURE, dated as of _________, 2000, between JUNIPER NETWORKS, INC., a corporation duly organized and existing under the laws of the State of Delaware, having its principal office at 385 Ravendale Drive, Mountain View, California 94043 (herein called the "Company"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association organized under the laws of the United States, as Trustee hereunder (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its __% Convertible Subordinated Notes due March 15, 2007 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when the Securities are executed by the Company and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. Further, all things necessary to duly authorize the issuance of the Common Stock of the Company issuable upon the conversion of the Securities, and to duly reserve for issuance the number of shares of Common Stock issuable upon such conversion, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and -1- 7 (3) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder of a Security, has the meaning specified in Section 1.4. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of The Depository Trust Company or any successor Depository, in each case to the extent applicable to such transaction and as in effect from time to time. "Authenticating Agent" means any Person authorized pursuant to Section 6.12 to act on behalf of the Trustee to authenticate Securities. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board. "Board Resolution" means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, shall have been delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, Place of Conversion or any other place, as the case may be, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in such Place of Payment, Place of Conversion or other place, as the case may be, are authorized or obligated by law or executive order to close; provided, however, that a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close shall not be a Business Day for purposes of Section 13.9. "Change in Control" has the meaning specified in Section 14.4(2). "Closing Price Per Share" means, with respect to the Common Stock, for any day, (i) the last reported sale price regular way on the Nasdaq National Market or, (ii) if the Common Stock is not quoted on the Nasdaq National Market, the last reported sale price regular way per share or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices -2- 8 regular way, in either case, on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or (iii) if the Common Stock is not quoted on the Nasdaq National Market or listed or admitted to trading on any national securities exchange, the average of the closing bid prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "Code" has the meaning specified in Section 2.l. "Commission" means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means the Common Stock, par value $0.00001 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 12.11, shares issuable on conversion or repurchase of Securities shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; provided, however, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of Securities shall include shares of all such classes, and the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "common stock" includes any stock of any class of capital stock which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the issuer thereof and which is not subject to redemption by the issuer thereof. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Notice" has the meaning specified in Section 14.3. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its (i) Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President, an Executive Vice President or a Vice President, and by its (ii) Principal financial officer, Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Constituent Person" has the meaning specified in Section 12.11. "Conversion Agent" means any Person authorized by the Company to convert Securities in accordance with Article XII. The Company has initially appointed the Trustee as its Conversion Agent pursuant to Section 10.2 hereof. -3- 9 "Conversion Price" has the meaning specified in Section 14.4(3). "Conversion Rate" has the meaning specified in Section 12.1. "Corporate Trust Office" means the office of the Trustee at which at any particular time the trust created by this Indenture shall be principally administered (which at the date of this Indenture is located at N9303-120, Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479, Attention: Corporate Trust Administration (Juniper Networks, Inc., __% Convertible Subordinated Notes due March 15, 2007)). "corporation" means a corporation, company, association, joint-stock company or business trust. "Defaulted Interest" has the meaning specified in Section 3.7. "Depositary" means, with respect to any Securities (including any Global Securities), a clearing agency that is registered as such under the Exchange Act and is designated by the Company to act as Depositary for such Securities (or any successor securities clearing agency so registered). "Designated Senior Debt" means the Company's obligations under any particular Senior Debt in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Senior Debt shall be "Designated Senior Debt" for purposes of this Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Debt to exercise the rights of Designated Senior Debt). "Distribution Date" shall mean the "Distribution Date" as such term is defined in the Registration Rights Agreement. "Dollar" or "U.S. $" means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts. "DTC" means The Depository Trust Company, a New York corporation. "Effective Failure" has the meaning specified in Section 10.11. "Effectiveness Period" has the meaning specified in Section 10.11. "Event of Default" has the meaning specified in Section 5.1. "Exchange Act" means the United States Securities Exchange Act of 1934 (or any successor statute), as amended from time to time. "Global Security" means a Security that is registered in the Security Register in the name of a Depositary or a nominee thereof. -4- 10 "Holder" means the Person in whose name the Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Issue Date" means _________, 2000. "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, exercise of the repurchase right set forth in Article XIV or otherwise. "Non-electing Share" has the meaning specified in Section 12.11. "Notice of Default" has the meaning specified in Section 5.1. "Officers' Certificate" means a certificate signed by (i) the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the President, an Executive Vice President or a Vice President and by (ii) the principal financial officer, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. One of the Officers signing an Officers' Certificate given pursuant to Section 10.8 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company and who shall be acceptable to the Trustee. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for the payment or redemption of which money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities, provided that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; -5- 11 (iii) Securities which have been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and (iv) Securities converted into Common Stock pursuant to Article XII; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities are present at a meeting of Holders of Securities for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee has been notified in writing to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor, and the Trustee shall be protected in relying upon an Officer's Certificate to such effect. "Over-allotment Option" has the meaning specified in Section 3.1. "Paying Agent" means any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company and, except as otherwise specifically set forth herein, such term shall include the Company if it shall act as its own Paying Agent. The Company has initially appointed the Trustee as its Paying Agent pursuant to Section 10.2 hereof. "Payment Blockage Notice" has the meaning specified in Section 13.2. "Person" means any individual, corporation, limited liability company, partnership, joint venture, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Place of Conversion" has the meaning specified in Section 3.1. "Place of Payment" has the meaning specified in Section 3.1. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. -6- 12 "Press Release" means any press release issued by the Company and disseminated to Reuters Business News Services and Bloomberg News Services. "Record Date" means any Regular Record Date or Special Record Date. "Record Date Period" means the period from the close of business of any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for interest payable in respect of any Security on any Interest Payment Date means the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Representative" means the (a) indenture trustee or other trustee, agent or representative for any Senior Debt or (b) with respect to any Senior Debt that does not have any such trustee, agent or other representative, (i) in the case of such Senior Debt issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Debt, any holder or owner of such Senior Debt acting with the consent of the required persons necessary to bind such holders or owners of such Senior Debt and (ii) in the case of all other such Senior Debt, the holder or owner of such Senior Debt. "Repurchase Date" has the meaning specified in Section 14.1. "Repurchase Price" has the meaning specified in Section 14.1. "Responsible Officer", when used with respect to the Trustee, means any officer within the Corporate Trust Office of the Trustee with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge and familiarity with the particular subject. "Securities" has the meaning ascribed to it in the first paragraph under the caption "Recitals of the Company". "Securities Act" means the United States Securities Act of 1933 (or any successor statute), as amended from time to time. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5. -7- 13 "Senior Debt" means the principal of (and premium, if any) and interest (including all interest accruing subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding) on, and all fees and other amounts payable in connection with, the following, whether absolute or contingent, secured or unsecured, due or to become due, outstanding on the date of this Indenture or thereafter created, incurred or assumed: (a) indebtedness of the Company evidenced by a credit or loan agreement, note, bond, debenture or other written obligation, (b) all obligations of the Company for money borrowed, (c) all obligations of the Company evidenced by a note or similar instrument given in connection with the acquisition of any businesses, properties or assets of any kind, (d) obligations of the Company (i) as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles and (ii) as lessee under other leases for facilities, capital equipment or related assets, whether or not capitalized, entered into or leased for financing purposes, (e) all obligations of the Company under interest rate and currency swaps, caps, floors, collars, hedge agreements, forward contracts or similar agreements or arrangements, (f) all obligations of the Company with respect to letters of credit, bankers' acceptances and similar facilities (including reimbursement obligations with respect to the foregoing), (g) all obligations of the Company issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable and accrued liabilities arising in the ordinary course of business), (h) all obligations of the type referred to in clauses (a) through (g) above of another Person and all dividends of another Person, the payment of which, in either case, the Company has assumed or guaranteed, or for which the Company is responsible or liable, directly or indirectly, jointly or severally, as obligor, guarantor or otherwise, or which is secured by a lien on the property of the Company, and (i) renewals, extensions, modifications, replacements, restatements and refundings of, or any indebtedness or obligation issued in exchange for, any such indebtedness or obligation described in clauses (a) through (h) of this paragraph; provided, however, that Senior Debt shall not include any such indebtedness or obligation if the terms of such indebtedness or obligation (or the terms of the instrument under which, or pursuant to which it is issued) expressly provide that such indebtedness or obligation is not superior in right of payment to the Securities. "Significant Subsidiary" means, with respect to any Person, a Subsidiary of such Person that would constitute a "significant subsidiary" as such term is defined under Rule 1-02 of Regulation S-X under the Securities Act and the Exchange Act. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Company pursuant to Section 3.7. "Stated Maturity", when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock or other similar interests in the corporation which ordinarily has or have voting power -8- 14 for the election of directors, or persons performing similar functions, whether at all times or only so long as no senior class of stock or other interests has or have such voting power by reason of any contingency. "Successor Security" of any particular Security means every Security issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Trading Day" means (i) if the Common Stock is quoted on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, days on which trades may be effected through such system, (ii) if the Common Stock is listed or admitted for trading on any national or regional securities exchange, days on which such national or regional securities exchange is open for business, or (iii) if the Common Stock is not listed on a national or regional securities exchange or quoted on the Nasdaq National Market or any other system of automated dissemination of quotation of securities prices, days on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "Trust Indenture Act" means the Trust Indenture Act of 1939, and the rules and regulations thereunder, as in force at the date as of which this instrument was executed, provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939, and the rules and regulations thereunder, as so amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Underwriters" means Goldman, Sachs & Co., Credit Suisse First Boston Corporation, FleetBoston Robertson Stephens, Inc., Dain Rauscher Incorporated, SG Cowen Securities Corporation and Warburg Dillon Read LLC. "Underwriting Agreement" means the Underwriting Agreement, dated as of _________, 2000, between the Company and the Underwriters, as such agreement may be amended from time to time. "United States" means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction (its "possessions" including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands). SECTION 1.2 Compliance Certificates And Opinions. -9- 15 Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (including certificates provided for in Section 10.8) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3 Form of Documents Delivered to the Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or any other Person stating that the information with respect to such factual matters is in the possession of the Company or such other Person, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. -10- 16 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4 Acts of Holders of Securities. (1) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders of Securities may be embodied in and evidenced by (A) one or more instruments of substantially similar tenor signed by such Holders in person or by an agent or proxy duly appointed in writing by such Holders or (B) the record of Holders of Securities voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities duly called and held in accordance with the provisions of Article IX. Such action shall become effective when such instrument or instruments or record is delivered to the Trustee and, where it is hereby expressly required, to the Company. The Trustee shall promptly deliver to the Company copies of all such instruments and records delivered to the Trustee. Such instrument or instruments and records (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders of Securities signing such instrument or instruments and so voting at such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and the Company if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 9.6. (2) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. (3) The principal amount and serial number of any Security held by any Person, and the date of his holding the same, shall be proved by the Security Register. (4) The fact and date of execution of any such instrument or writing and the authority of the Person executing the same may also be proved in any other manner which the Trustee deems sufficient; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section 1.4. (5) The Company may set any day as the record date for the purpose of determining the Holders entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted by this Indenture to be given or taken by Holders. Promptly and in any case not later than ten days after setting a record date, the Company shall notify the Trustee and the Holders of such record date. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th -11- 17 day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 15.1) prior to such first solicitation or vote, as the case may be. With regard to any record date, the Holders on such date (or their duly appointed agents or proxies), and only such Persons, shall be entitled to give or take, or vote on, the relevant action, whether or not such Holders remain Holders after such record date. Notwithstanding the foregoing, the Company shall not set a record date for, and the provisions of this paragraph shall not apply with respect to, any notice, declaration or direction referred to in the next paragraph. Upon receipt by the Trustee from any Holder of (i) any notice of default or breach referred to in Section 5.1(4), if such default or breach has occurred and is continuing and the Trustee shall not have given such a notice to the Company, (ii) any declaration of acceleration referred to in Section 5.2, if an Event of Default has occurred and is continuing and the Trustee shall not have given such a declaration to the Company, or (iii) any direction referred to in Section 5.12, if the Trustee shall not have taken the action specified in such direction, then, with respect to clauses (ii) and (iii), a record date shall automatically and without any action by the Company or the Trustee be set for determining the Holders entitled to join in such declaration or direction, which record date shall be the close of business on the tenth day (or, if such day is not a Business Day, the first Business Day thereafter) following the day on which the Trustee receives such declaration or direction, and, with respect to clause (i), the Trustee may set any day as a record date for the purpose of determining the Holders entitled to join in such notice of default. Promptly after such receipt by the Trustee of any such declaration or direction referred to in clause (ii) or (iii), and promptly after setting any record date with respect to clause (i), and as soon as practicable thereafter, the Trustee shall notify the Company and the Holders of any such record date so fixed. The Holders on such record date (or their duly appointed agents or proxies), and only such Persons, shall be entitled to join in such notice, declaration or direction, whether or not such Holders remain Holders after such record date; provided that, unless such notice, declaration or direction shall have become effective by virtue of Holders of the requisite principal amount of Securities on such record date (or their duly appointed agents or proxies) having joined therein on or prior to the 90th day after such record date, such notice, declaration or direction shall automatically and without any action by any Person be canceled and of no further effect. Nothing in this paragraph shall be construed to prevent a Holder (or a duly appointed agent or proxy thereof) from giving, before or after the expiration of such 90-day period, a notice, declaration or direction contrary to or different from, or, after the expiration of such period, identical to, the notice, declaration or direction to which such record date relates, in which event a new record date in respect thereof shall be set pursuant to this paragraph. In addition, nothing in this paragraph shall be construed to render ineffective any notice, declaration or direction of the type referred to in this paragraph given at any time to the Trustee and the Company by Holders (or their duly appointed agents or proxies) of the requisite principal amount of Securities on the date such notice, declaration or direction is so given. (6) Except as provided in Sections 5.12 and 5.13, any request, demand, authorization, direction, notice, consent, election, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, -12- 18 omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (7) The provisions of this Section 1.4 are subject to the provisions of Section 9.5. SECTION 1.5 Notices, Etc to the Trustee and Company. Any request, demand, authorization, direction, notice, consent, election, waiver or other Act of Holders of Securities or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder of Securities or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with a Responsible Officer of the Trustee and received at its Corporate Trust Office, Attention: Corporate Trust Administration (Juniper Networks, Inc., __% Convertible Subordinated Notes due March 15, 2007). (2) the Company by the Trustee or by any Holder of Securities shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing, mailed, first-class postage prepaid, or telecopied and confirmed by mail, first-class postage prepaid, or delivered by hand or overnight courier, addressed to the Company at 385 Ravendale Drive, Mountain View, California 94043, Attention: General Counsel, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.6 Notice to Holders of Securities; Waiver. Except as otherwise expressly provided herein, where this Indenture provides for notice to Holders of Securities of any event, such notice shall be sufficiently given to Holders if in writing and mailed, first-class postage prepaid or delivered by an overnight delivery service, to each Holder of a Security affected by such event, at the address of such Holder as it appears in the Security Register, not earlier than the earliest date and not later than the latest date prescribed for the giving of such notice. Neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Security shall affect the sufficiency of such notice with respect to other Holders of Securities. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Securities as shall be made with the approval of the Trustee, which approval shall not be unreasonably withheld, shall constitute a sufficient notification to such Holders for every purpose hereunder. Such notice shall be deemed to have been given when such notice is mailed. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver -13- 19 shall be the equivalent of such notice. Waivers of notice by Holders of Securities shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.7 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.8 Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.9 Separability Clause. In case any provision in this Indenture or the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.10 Benefits of Indenture. Except as provided in the next sentence, nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors assigns hereunder and the Holders of Securities, any benefit or legal or equitable right, remedy or claim under this Indenture. The provisions of Article XIII are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Debt. SECTION 1.11 Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. SECTION 1.12 Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Repurchase Date or Stated Maturity of any Security or the last day on which a Holder of a Security has a right to convert his Security shall not be a Business Day at a Place of Payment or Place of Conversion, as the case may be, then (notwithstanding any other provision of this Indenture or of the Securities) payment of principal of, premium, if any, or interest on, or the payment of the Redemption Price or Repurchase Price (whether the same is payable in cash or in shares of Common Stock in the case of the Repurchase Price) with respect to, or delivery for conversion of, such Security need not be made at such Place of Payment or Place of Conversion, as the case may be, on or by such day, but may be -14- 20 made on or by the next succeeding Business Day at such Place of Payment or Place of Conversion, as the case may be, with the same force and effect as if made on the Interest Payment Date, Redemption Date or Repurchase Date, or at the Stated Maturity or by such last day for conversion; provided, however, that in the case that payment is made on such succeeding Business Day, no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date, Repurchase Date, Stated Maturity or last day for conversion, as the case may be. SECTION 1.13 Conflict With Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Until such time as this Indenture shall be qualified under the Trust Indenture Act, this Indenture, the Company and the Trustee shall be deemed for all purposes hereof to be subject to and governed by the Trust Indenture Act to the same extent as would be the case if this Indenture were so qualified on the date hereof. ARTICLE II SECURITY FORMS SECTION 2.1 Form Generally. The Securities shall be in substantially the form set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange, the Internal Revenue Code of 1986, as amended, and regulations thereunder (the "Code"), or as may, consistent herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. All Securities shall be in fully registered form. The Trustee's certificates of authentication shall be in substantially the form set forth in Section 2.3. Conversion notices shall be in substantially the form set forth in Section 2.4. Repurchase notices shall be substantially in the form set forth in Section 2.2. The Securities shall be printed, lithographed, typewritten or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any automated quotation system or securities exchange (including on steel engraved borders if so required by any securities exchange upon which the Securities may be listed) on which the Securities may be quoted or listed, as the case may be, all as determined by the officers executing such Securities, as evidenced by their execution thereof. -15- 21 SECTION 2.2 Form of Security. [FORM OF FACE] [THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL SECURITY: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.] -16- 22 JUNIPER NETWORKS, INC. __% CONVERTIBLE SUBORDINATED NOTE DUE MARCH 15, 2007 No. ___________ $________ ___________ CUSIP NO. __________ JUNIPER NETWORKS, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company", which term includes any successor Person under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to _________________, or registered assigns, the principal sum of ________ United States Dollars (U.S.$______ ) [IF THIS SECURITY IS A GLOBAL SECURITY, THEN INSERT -- (which principal amount may from time to time be increased or decreased to such other principal amounts (which, taken together with the principal amounts of all other Outstanding Securities, shall not exceed $500,000,000 (or $575,000,000 if the Over-allotment Option is exercised in full) by adjustments made on the records of the Trustee hereinafter referred to in accordance with the Indenture)] on March 15, 2007 and to pay interest thereon, from _________, 2000, or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, semi-annually in arrears on March 15 and September 15 in each year (each, an "Interest Payment Date"), commencing September 15, 2000, at the rate of __% per annum, until the principal hereof is due, and at the rate of __% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Except as otherwise provided in the Indenture, any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Company, notice whereof shall be given to Holders of Securities not less than 10 days prior to the Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any automated quotation system or securities exchange on which the Securities may be quoted or listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payments of principal shall be made upon the surrender of this Security at the option of the Holder at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, in such lawful monies of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, or at such other offices or agencies as the Company may designate, by United States Dollar check drawn on, or wire transfer to, a United States Dollar account (such a transfer to be made only to a Holder of an aggregate -17- 23 principal amount of Securities in excess of U.S.$2,000,000 and only if such Holder shall have furnished wire instructions in writing to the Trustee no later than 15 days prior to the relevant payment date). Payment of interest on this Security may be made by United States Dollar check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register, or, upon written application by the Holder to the Security Registrar setting forth wire instructions not later than the relevant Record Date, by transfer to a United States Dollar account (such a transfer to be made only to a Holder of an aggregate principal amount of Securities in excess of U.S. $2,000,000 and only if such Holder shall have furnished wire instructions in writing to the Trustee no later than 15 days prior to the relevant payment date). Except as specifically provided herein and in the Indenture, the Company shall not be required to make any payment with respect to any tax, assessment or other governmental charge imposed by any government or any political subdivision or taxing authority thereof or therein. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof or an Authenticating Agent by the manual signature of one of their respective authorized signatories, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -18- 24 IN WITNESS WHEREOF, the Company has caused this Security to be duly executed. JUNIPER NETWORKS, INC. By: ------------------------------- Name: Title: Attest: By: ------------------------------ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. Dated: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION as Trustee By: ------------------------------------- Authorized Signatory 25 [FORM OF REVERSE] This Security is one of a duly authorized issue of securities of the Company designated as its "__% Convertible Subordinated Notes due March 15, 2007" (herein called the "Securities"), limited in aggregate principal amount to U.S. [$500,000,000] or if the Over-allotment Option is exercised in full, up to [$575,000,000], issued and to be issued under an Indenture, dated as of _________, 2000 (herein called the "Indenture"), between the Company and Norwest Bank Minnesota, National Association, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Debt and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of any authorized denominations as requested by the Holder surrendering the same upon surrender of the Security or Securities to be exchanged, at the Corporate Trust Office of the Trustee. The Trustee upon such surrender by the Holder will issue the new Securities in the requested denominations. No sinking fund is provided for the Securities. The Securities will not be subject to redemption until on or after the third Business Day after March 15, 2003 and will be redeemable on and after that date at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days notice to the Holders prior to the Redemption Date at the Redemption Prices (expressed as percentages of the principal amount) set forth below. The following table sets forth the Redemption Prices (expressed as percentages of the principal amount) if such Security is redeemed during the 12-month period beginning March 15 (beginning the third Business Day after March 15, 2003 through March 14, 2004 in the case of the first such period):
YEAR REDEMPTION PRICE ---- ---------------- 2003 % 2004 2005 2006
and thereafter at a Redemption Price equal to 100% of the principal amount, together, in each case, with accrued interest to the Redemption Date; provided, however, that interest installments on Securities whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. In the event of a redemption of the Securities, the Company will not be required (a) to register the transfer or exchange of Securities for a period of 15 days immediately preceding the date -21- 26 notice is given identifying the serial numbers of the Securities called for such redemption or (b) to register the transfer or exchange of any Security, or portion thereof, called for redemption. In any case where the due date for the payment of the principal of, premium, if any, or interest on, any Security or the last day on which a Holder of a Security has a right to convert his Security shall be, at any Place of Payment or Place of Conversion as the case may be, a day on which banking institutions at such Place of Payment or Place of Conversion are authorized or obligated by law or executive order to close, then payment of principal, premium, if any, interest, or delivery for conversion of such Security need not be made on or by such date at such place but may be made on or by the next succeeding day at such place which is not a day on which banking institutions are authorized or obligated by law or executive order to close, with the same force and effect as if made on the date for such payment or the date fixed for redemption or repurchase, or by such last day for conversion, and no interest shall accrue on the amount so payable for the period after such date. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at his option, at any time on or before the close of business on the date of Maturity, or in case this Security or a portion hereof is called for redemption or the Holder hereof has exercised his right to require the Company to repurchase this Security or such portion hereof, then in respect of this Security until the Business Day immediately preceding, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the Business Day immediately preceding the Redemption Date or the Repurchase Date, as the case may be, to convert this Security (or any portion of the principal amount hereof that is an integral multiple of U.S.$1,000, provided that the unconverted portion of such principal amount is U.S.$1,000 or any integral multiple of U.S.$1,000 in excess thereof) into fully paid and nonassessable shares of Common Stock of the Company at an initial Conversion Rate of ______ shares of Common Stock for each U.S.$1,000 principal amount of Securities (or at the current adjusted Conversion Rate if an adjustment has been made as provided in the Indenture) by surrender of this Security, duly endorsed or assigned to the Company or in blank and, in case such surrender shall be made during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except if this Security or portion thereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date occurring, in either case, during such period and, as a result, the right to convert this Security would otherwise terminate in such period if not exercised), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted, and also the conversion notice hereon duly executed, to the Company at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company, subject to any laws or regulations applicable thereto and subject to the right of the Company to terminate the appointment of any Conversion Agent (as defined below) as may be designated by it for such purpose in the Borough of Manhattan, The City of New York, or at such other offices or agencies as the Company may designate (each a "Conversion Agent"), provided, further, that if this Security or portion hereof has been called for redemption on a Redemption Date or is repurchasable on a Repurchase Date occurring, in either case, during the period from the close -22- 27 of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such succeeding Interest Payment Date, and as a result, the right to convert this Security would otherwise terminate in such period if not exercised and this Security is surrendered for conversion during such period, then the Holder of this Security on such Regular Record Date will be entitled to receive the interest accruing hereon from the Interest Payment Date next preceding the date of such conversion to such succeeding Interest Payment Date and the Holder of this Security who converts this Security or a portion hereof during such period shall not be required to pay such interest upon surrender of this Security for conversion. Subject to the provisions of the preceding sentence and, in the case of a conversion after the close of business on the Regular Record Date next preceding any Interest Payment Date and on or before the close of business on such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record as of such Regular Record Date to receive the related installment of interest to the extent and under the circumstances provided in the Indenture, no cash payment or adjustment is to be made on conversion for interest accrued hereon from the Interest Payment Date next preceding the day of conversion, or for dividends on the Common Stock issued on conversion hereof. The Company shall thereafter deliver to the Holder the fixed number of shares of Common Stock (together with any cash adjustment, as provided in the Indenture) into which this Security is convertible and such delivery will be deemed to satisfy the Company's obligation to pay the principal amount of this Security. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest (calculated to the nearest 1/100th of a share) the Company shall pay a cash adjustment as provided in the Indenture. The Conversion Rate is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations or mergers to which the Company is a party (other than a consolidation or merger that does not result in any reclassification, conversion, exchange or cancellation of the Common Stock) or the conveyance, transfer, sale or lease of all or substantially all of the property and assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities, so that this Security, if then Outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of the number of shares of Common Stock of the Company into which this Security could have been converted immediately prior to such consolidation, merger, conveyance, transfer, sale or lease (assuming such holder of Common Stock is not a Constituent Person or an Affiliate of a Constituent Person, failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of Non-electing Shares. No adjustment in the Conversion Rate will be made until such adjustment would require an increase or decrease of at least one percent of such rate, provided that any adjustment that would otherwise be made will be carried forward and taken into account in the computation of any subsequent adjustment. If a Change in Control occurs, the Holder of this Security, at the Holder's option, shall have the right, in accordance with the provisions of the Indenture, to require the Company to repurchase this Security (or any portion of the principal amount hereof that is at least $1,000 or an integral multiple of $1,000 in excess thereof, provided that the portion of the principal amount of this Security to be Outstanding after such repurchase is at least equal to U.S.$1,000) for cash at a Repurchase Price equal to 100% of the principal amount thereof plus interest accrued to the -23- 28 Repurchase Date. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the conditions provided in the Indenture, by delivery of shares of Common Stock having a fair market value equal to the Repurchase Price. For purposes of this paragraph, the fair market value of shares of Common Stock shall be determined by the Company and shall be equal to 95% of the average of the Closing Prices Per Share for the five consecutive Trading Days immediately preceding and including the third Trading Day prior to the Repurchase Date. Whenever in this Security there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Security shall not be construed as excluding the Repurchase Price so payable in those provisions of this Security when such express mention is not made; provided, however, that, for the purposes of the second succeeding paragraph, such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash. [THE FOLLOWING PARAGRAPH SHALL APPEAR IN EACH GLOBAL SECURITY: In the event of a deposit or withdrawal of an interest in this Security, including an exchange, transfer, redemption, repurchase or conversion of this Security in part only, the Trustee, as custodian of the Depositary, shall make an adjustment on its records to reflect such deposit or withdrawal in accordance with the Applicable Procedures.] [THE FOLLOWING PARAGRAPH SHALL APPEAR IN EACH SECURITY THAT IS NOT A GLOBAL SECURITY: In the event of redemption, repurchase or conversion of this Security in part only, a new Security or Securities for the unredeemed, unrepurchased or unconverted portion hereof will be issued in the name of the Holder hereof.] The indebtedness evidenced by this Security is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Debt of the Company, and this Security is issued subject to such provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. If an Event of Default shall occur and be continuing, the principal of all the Securities, together with accrued interest to the date of declaration, may be declared due and payable in the manner and with the effect provided in the Indenture. Upon payment (i) of the amount of principal so declared due and payable, together with accrued interest to the date of declaration, and (ii) of interest on any overdue principal and, to the extent permitted by applicable law, overdue interest, all of the Company's obligations in respect of the payment of the principal of and interest on the Securities shall terminate. -24- 29 The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with either (a) the written consent of the Holders of not less than a majority in principal amount of the Securities at the time Outstanding, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least 66-2/3% in aggregate principal amount of the Outstanding Securities represented and entitled to vote at such meeting. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued in exchange therefore or in lieu hereof whether or not notation of such consent or waiver is made upon this Security or such other Security. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default, the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of the Securities Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof, premiums if any, or interest hereon on or after the respective due dates expressed herein or for the enforcement of the right to convert this Security as provided in the Indenture. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security at the times, places and rate, and in the coin or currency, herein prescribed or to convert this Security as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable on the Security Register upon surrender of this Security for registration of transfer at the Corporate Trust Office of the Trustee or at such other office or agency of the Company as may be designated by it for such purpose in the Borough of Manhattan, The City of New York (which shall initially be an office or agency of the Trustee), or at such other offices or agencies as the Company may designate, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder thereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees by the Registrar. No service charge shall be made for any such -25- 30 registration of transfer or exchange, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of a this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered, as the owner thereof for all purposes, whether or not such Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse for the payment of the principal (and premium, if any) or interest on this Security and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of consideration for the issue hereof, expressly waived and released. THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -26- 31 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Security, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenant in common UNIF GIFT MIN ACT ____ Custodian _______ TEN ENT as tenants by the entireties (Cust) (Cust) (Minor) JT TEN as joint tenants with right under Uniform Gifts to Minors Act _____ of survivorship and not as (State) tenants in common
Additional abbreviations may also be used though not in the above list. -27- 32 ELECTION OF HOLDER TO REQUIRE REPURCHASE (1) Pursuant to Section 14.1 of the Indenture, the undersigned hereby elects to have this Security repurchased by the Company. (2) The undersigned hereby directs the Trustee or the Company to pay it or ______________ an amount in cash or, at the Company's election, Common Stock valued as set forth in the Indenture, equal to 100% of the principal amount to be repurchased (as set forth below), plus interest accrued to the Repurchase Date, as provided in the Indenture. Dated: - -------------------------------------- - -------------------------------------- Signature(s) Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. - -------------------------------------- Signature Guaranteed Principal amount to be repurchased (at least U.S. $1,000 or an integral multiple of $1,000 in excess thereof): ___________________ Remaining principal amount following such repurchase (not less than U.S. $1,000): - ------------------------- NOTICE: The signature to the foregoing Election must correspond to the Name as written upon the face of this Security in every particular, without alteration or any change whatsoever. SECTION 2.3 Form of Certificate of Authentication. The Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities referred to in the within-mentioned Indenture. Dated: ------------------ -28- 33 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION as Trustee By: ------------------------------ Authorized Signatory SECTION 2.4 Form of Conversion Notice. CONVERSION NOTICE The undersigned Holder of this Security hereby irrevocably exercises the option to convert this Security, or any portion of the principal amount hereof (which is U.S. $1,000 or an integral multiple of U.S. $1,000 in excess thereof, provided that the unconverted portion of such principal amount is U.S. $1,000 or any integral multiple of U.S. $1,000 in excess thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that such shares, together with a check in payment for any fractional share and any Securities representing any unconverted principal amount hereof, be delivered to and be registered in the name of the undersigned unless a different name has been indicated below. If shares of Common Stock or Securities are to be registered in the name of a Person other than the undersigned, (a) the undersigned will pay all transfer taxes payable with respect thereto and (b) signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. Any amount required to be paid by the undersigned on account of interest accompanies this Security. Dated: ------------ ---------------------------------------------- Signature(s) If shares or Securities are to be registered in the name of a Person other than the Holder, please print such Person's name and address: - -------------------------------------- (Name) - -------------------------------------- - -------------------------------------- (Address) - -------------------------------------- Social Security or other Identification Number, if any -29- 34 - -------------------------------------- [Signature Guaranteed] If only a portion of the Securities is to be converted, please indicate: 1. Principal amount to be converted: U.S. $ ___________ 2. Principal amount and denomination of Securities representing unconverted principal amount to be issued: Amount: U.S. $___________ Denominations: U.S. $____________ (U.S. $1,000 or any integral multiple of U.S. $1,000 in excess thereof, provided that the unconverted portion of such principal amount is U.S. $1,000 or any integral multiple of U.S. $1,000 in excess thereof) SECTION 2.5 Form of Assignment. For value received ________________ hereby sell(s), assign(s) and transfer(s) unto ________________ (Please insert social security or other identifying number of assignee) the within Security, and hereby irrevocably constitutes and appoints ____________________as attorney to transfer the said Security on the books of the Company, with full power of substitution in the premises. Dated: ------------ ---------------------------------------------- -------------------------------------- Signature(s) Signature(s) must be guaranteed by an Eligible Guarantor Institution with membership in an approved signature guarantee program pursuant to Rule 17Ad - 15 under the Securities Exchange Act of 1934. -------------------------------------- Signature Guaranteed -30- 35 ARTICLE III THE SECURITIES SECTION 3.1 Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to U.S. $500,000,000 (or $575,000,000 if the Over-allotment Option set forth in Section 2 of the Underwriting Agreement is exercised in full (the "Over-allotment Option")), except for Securities authenticated and delivered pursuant to Section 3.4, 3.5, 3.6, 8.5, 12.2 or 14.3(5) in exchange for, or in lieu of, other Securities previously authenticated and delivered under this Indenture. The Securities shall be known and designated as the "__% Convertible Subordinated Notes due March 15, 2007" of the Company. Their Stated Maturity shall be March 15, 2007 and they shall bear interest on their principal amount from __________, 2000, payable semi-annually in arrears on March 15 and September 15 in each year, commencing September 15, 2000, at the rate of __% per annum until the principal thereof is due and at the rate of __% per annum on any overdue principal and, to the extent permitted by law, on any overdue interest; provided, however, that payments shall only be made on a Business Day as provided in Section 1.12. The principal of, premium, if any, and interest on the Securities shall be payable as provided in the form of Securities set forth in Section 2.2, and the Repurchase Price, whether payable in cash or in shares of Common Stock, shall be payable at such places as are identified in the Company Notice given pursuant to Section 14.3 (any city in which any Paying Agent is located being herein called a "Place of Payment"). The Securities shall be redeemable at the option of the Company at any time on or after the third Business Day after March 15, 2003, in whole or in part, subject to the conditions and as otherwise provided in Article XI and in the form of Security set forth in Section 2.2. The Securities shall be convertible as provided in Article XII (any city in which any Conversion Agent is located being herein called a "Place of Conversion"). The Securities shall be subordinated in right of payment to Senior Debt of the Company as provided in Article XIII. The Securities shall be subject to repurchase by the Company at the option of the Holders as provided in Article XIV. SECTION 3.2 Denominations. -31- 36 The Securities shall be issuable only in registered form, without coupons, in denominations of U.S. $1,000 and integral multiples of U.S. $1,000 in excess thereof. SECTION 3.3 Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its President, one of its Executive Vice Presidents or one of its Vice Presidents, and attested by its Chief Financial Officer, Secretary or one of its Assistant Secretaries. Any such signature may be manual or facsimile. Securities bearing the manual or facsimile signature of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee or to its order for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and make available for delivery such Securities as in this Indenture provided. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature of an authorized signatory, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 3.4 Global Securities; Non-global Securities; Book-entry Provisions. (1) Global Securities (i) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary designated by the Company for such Global Security or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (ii) Except for exchanges of Global Securities for definitive, Non-global Securities at the sole discretion of the Company, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary for such Global Security or a nominee thereof unless (A) such Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered as such under the Exchange Act or announces an intention permanently to cease business -32- 37 or does in fact do so or (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security. In such event, if a successor Depositary for such Global Security is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate directing the authentication and delivery of Securities, will authenticate and deliver, Securities, in any authorized denominations in an aggregate principal amount equal to the principal amount of such Global Security in exchange for such Global Security. (iii) If any Global Security is to be exchanged for other Securities or canceled in whole, it shall be surrendered by or on behalf of the Depositary or its nominee to the Trustee, as Security Registrar, for exchange or cancellation, as provided in this Article III. If any Global Security is to be exchanged for other Securities or canceled in part, or if another Security is to be exchanged in whole or in part for a beneficial interest in any Global Security, in each case, as provided in Section 3.5, then either (A) such Global Security shall be so surrendered for exchange or cancellation, as provided in this Article III, or (B) the principal amount thereof shall be reduced or increased by an amount equal to the portion thereof to be so exchanged or canceled, or equal to the principal amount of such other Security to be so exchanged for a beneficial interest therein, as the case may be, by means of an appropriate adjustment made on the records of the Trustee, as Security Registrar, whereupon the Trustee, in accordance with the Applicable Procedures, shall instruct the Depositary or its authorized representative to make a corresponding adjustment to its records. Upon any such surrender or adjustment of a Global Security, the Trustee shall, subject to Section 3.5(3) and as otherwise provided in this Article III, authenticate and deliver any Securities issuable in exchange for such Global Security (or any portion thereof) to or upon the order of, and registered in such names as may be directed by, the Depositary or its authorized representative. Upon the request of the Trustee in connection with the occurrence of any of the events specified in the preceding paragraph, the Company shall promptly make available to the Trustee a reasonable supply of Securities that are not in the form of Global Securities. The Trustee shall be entitled to rely upon any order, direction or request of the Depositary or its authorized representative which is given or made pursuant to this Article III if such order, direction or request is given or made in accordance with the Applicable Procedures. (iv) Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security or any portion thereof, whether pursuant to this Article III or otherwise, shall be authenticated and delivered in the form of, and shall be, a registered Global Security, unless such Security is registered in the name of a Person other than the Depositary for such Global Security or a nominee thereof, in which case such Security shall be authenticated and delivered in definitive, fully registered form, without interest coupons. (v) The Depositary or its nominee, as registered owner of a Global Security, shall be the Holder of such Global Security for all purposes under the Indenture and the Securities, and owners of beneficial interests in a Global Security shall hold such interests pursuant to the Applicable Procedures. Accordingly, any such owner's beneficial interest in a Global Security will be shown only on, and the transfer of such interest shall be effected only through, records maintained -33- 38 by the Depositary or its nominee or its Agent Members and such owners of beneficial interests in a Global Security will not be considered the owners or holders thereof. (2) Non-global Securities. Securities issued upon the events described in Section 3.4(l)(ii) shall be in definitive, fully registered form, without interest coupons. SECTION 3.5 Registration; Registration of Transfer and Exchange; Restrictions on Transfer. (1) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers and exchanges of Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.2 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, and subject to the other provisions of this Section 3.5, Securities may be exchanged for other Securities of any authorized denomination and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any such office or agency. Whenever any Securities are so surrendered for exchange, and subject to the other provisions of this Section 3.5, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company, the Trustee and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt and entitled to the same benefits under this Indenture as the Securities surrendered upon such registration of transfer or exchange. No service charge shall be made to a Holder for any registration of transfer or exchange of Securities except as provided in Section 3.6, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 8.5, 12.2 or 14.3 (other than where the shares of Common Stock are to be issued or delivered in a name other than that of the Holder of the Security) not involving any transfer and other than any stamp and other duties, if any, which may be imposed in connection with any such transfer or exchange by the United States or any political subdivision thereof or therein, which shall be paid by the Company. -34- 39 In the event of a redemption of the Securities, neither the Company nor the Securities Registrar will be required (a) to register the transfer of or exchange Securities for a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such redemption or (b) to register the transfer of or exchange any Security, or portion thereof, called for redemption. SECTION 3.6 Mutilated, Destroyed, Lost or Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there be delivered to the Company and to the Trustee: (1) evidence to their satisfaction of the destruction, loss or theft of any Security, and (2) such security or indemnity as may be satisfactory to the Company and the Trustee to save each of them and any agent of either of them harmless, then, in the absence of actual notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion, but subject to any conversion rights, may, instead of issuing a new Security, pay such Security, upon satisfaction of the conditions set forth in the preceding paragraph. Upon the issuance of any new Security under this Section 3.6, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto (other than any stamp and other duties, if any, which may be imposed in connection therewith by the United States or any political subdivision thereof or therein, which shall be paid by the Company) and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section 3.6 in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and such new Security shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section 3.6 are exclusive and shall preclude (to the extent lawful) all other rights and remedies of any Holder with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. -35- 40 SECTION 3.7 Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security, the date of the proposed payment and the Special Record Date, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. The Special Record Date for the payment of such Defaulted Interest shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at such Holder's address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section and Section 3.5, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. -36- 41 Interest on any Security which is converted in accordance with Section 12.2 during a Record Date Period shall be payable in accordance with the provisions of Section 12.2. SECTION 3.8 Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee, any Paying Agent and any agent of the Company, the Trustee or any Paying Agent may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 3.7) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee, any Paying Agent nor any agent of the Company, the Trustee or any Paying Agent shall be affected by notice to the contrary. SECTION 3.9 Cancellation. All Securities surrendered for payment, redemption, repurchase, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. All Securities so delivered to the Trustee shall be canceled promptly by the Trustee (or its agent). No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section 3.9. The Trustee shall dispose of all canceled Securities in accordance with applicable law and its customary practices in effect from time to time. SECTION 3.10 Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 3.11 CUSIP Numbers. The Company in issuing Securities may use "CUSIP" numbers (if then generally in use) in addition to serial numbers; if so, the Trustee shall use such CUSIP numbers in addition to serial numbers in notices of redemption and repurchase as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such CUSIP numbers either as printed on the Securities or as contained in any notice of a redemption or repurchase and that reliance may be placed only on the serial or other identification numbers printed on the Securities, and any such redemption or repurchase shall not be affected by any defect in or omission of such CUSIP numbers. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.1 Satisfaction And Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of conversion, or registration of transfer or exchange, or replacement of Securities -37- 42 herein expressly provided for and in the form of Securities set forth in Section 2.2 and the Company's obligations to the Trustee pursuant to Section 6.7), and the Trustee, at the expense of the Company, shall execute proper instruments in form and substance satisfactory to the Trustee acknowledging satisfaction and discharge of this Indenture, when (1) either (i) all Securities theretofore authenticated and delivered (other than (A) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6 and (B) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (ii) all such Securities not theretofore delivered to the Trustee or its agent for cancellation (other than Securities referred to in clauses (A) and (B) of clause (1)(i) above) (a) have become due and payable, or (b) will have become due and payable at their Stated Maturity within one year, or (c) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of clause (a), (b) or (c) above, has deposited or caused to be deposited with the Trustee as trust funds (immediately available to the Holders in the case of clause (a)) in trust for the purpose an amount in cash sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal, premium, if any, and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 6.7, the obligations of the Company to any Authenticating Agent under Section 6.12, if money shall have been deposited with the Trustee pursuant to clause (1)(ii) of this Section 4.1, the obligations of the Trustee under Section 4.2 and the last paragraph of Section 10.3 and the obligations of the Company and the Trustee under Section 3.5 and Article XII -38- 43 shall survive. Funds held in trust pursuant to this Section are not subject to the provisions of Article XIII. SECTION 4.2 Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money or property deposited with the Trustee pursuant to Section 4.1 and in accordance with the provisions of Article XIII shall be held in trust for the sole benefit of the Holders and not be subject to the subordination provisions of Article XIII, and such monies shall be applied by the Trustee, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent, to the Persons entitled thereto, of the principal, premium, if any, and interest for whose payment such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 4.1 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon Company Request. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed or assessed against all money deposited with the Trustee pursuant to Section 4.1 (other than income taxes and franchise taxes incurred or payable by the Trustee and such other taxes, fees or charges incurred or payable by the Trustee that are not directly the result of the deposit of such money with the Trustee). ARTICLE V REMEDIES SECTION 5.1 Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article XIII or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of the principal of or premium, if any, on any Security at its Maturity, whether or not such payment is prohibited by the subordination provisions of the Securities or of this Indenture; or (2) default in the payment of any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days, whether or not such payment is prohibited by the subordination provisions of the Securities or of this Indenture; or (3) failure by the Company to give a Company Notice in accordance with Section 14.3 whether or not such Company Notice is prohibited by the subordination provisions of the Securities or the Indenture; or -39- 44 (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance or breach of which is specifically dealt with elsewhere in this Section), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) any indebtedness under any bonds, debentures, notes or other evidences of indebtedness for money borrowed (or guarantee thereof) by the Company or any Significant Subsidiary or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company or any Significant Subsidiary (an "Instrument") with an aggregate principal amount in excess of U.S. $25,000,000, whether such indebtedness now exists or shall hereafter be created, is not paid at final maturity under any Instrument (either at its stated maturity or upon acceleration thereof), and such indebtedness is not discharged, or such acceleration is not rescinded or annulled, within a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such default to be cured or waived or such acceleration to be rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; or (6) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or any Significant Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Significant Subsidiary or of any substantial part of the property of either, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (7) the commencement by the Company or any Significant Subsidiary of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by either to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against either, or the filing by either of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by either to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the -40- 45 Company or any Significant Subsidiary or of any substantial part of the property of either, or the making by either of an assignment for the benefit of creditors, or the admission by either in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Significant Subsidiary in furtherance of any such action. SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 5.1(6) or 5.1(7) with respect to the Company) occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may, subject to the provisions of Article XIII, declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable. If an Event of Default specified in Section 5.1(6) or 5.1(7) with respect to the Company occurs, the principal of, and accrued interest on, all the Securities shall, subject to the provisions of Article XIII, ipso facto become immediately due and payable without any declaration or other Act of the Holders or any act on the part of the Trustee. At any time after such declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article V provided, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may, on behalf of all Holders, rescind and annul such declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all overdue interest on all Securities, (ii) the principal of and premium, if any, on any Securities which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate borne by the Securities, (iii) to the extent permitted by applicable law, interest upon overdue interest at a rate of __% per annum, and (iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; (2) all Events of Default, other than the nonpayment of the principal of and any premium and interest on, Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13; and (3) such rescission and annulment would not conflict with any judgment or decree issued in appropriate judicial proceedings regarding the payment by the Trustee to the Holders of the amounts referred to in 5.2(1). -41- 46 No rescission or annulment referred to above shall affect any subsequent default or impair any right consequent thereon. SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (1) default is made in the payment of any interest on any Security when it becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of or premium, if any, on any Security at the Maturity thereof, the Company will, upon demand of the Trustee but subject to the provisions of Article XIII pay to it, for the benefit of the Holders of such Securities the whole amount then due and payable on such Securities for principal and interest and interest on any overdue principal and premium, if any, and, to the extent permitted by applicable law, on any overdue interest, at a rate of __% per annum, and in addition thereto, such further amount as shall be sufficient to cover the reasonable costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.4 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or the creditors of either, the Trustee (irrespective of whether the principal of, and any interest on, the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, -42- 47 (1) to file and prove a claim for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Securities and take such other actions, including participating as a member, voting or otherwise, of any official committee of creditors appointed in such matter, and to file such other papers or documents, in each of the foregoing cases, as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Securities allowed in such judicial proceeding, and (2) to collect and receive any moneys or other property payable or deliverable on any such claim and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder of Securities to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 6.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of a Security in any such proceeding; provided, however, that the Trustee may, on behalf of such Holders, vote for the election of a trustee in bankruptcy or similar official. SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which judgment has been recovered. SECTION 5.6 Application of Money Collected. Subject to Article XIII, any money or property collected by the Trustee pursuant to this Article V shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, premium, if any, or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.7; SECOND: To the payment of the amounts then due and unpaid for principal of, premium, if any, or interest on, the Securities in respect of which or for the benefit of which such money has -43- 48 been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal, premium, if any, and interest, respectively; THIRD: To such other Person or Persons, if any, to the extent entitled thereto; and FOURTH: Any remaining amounts shall be repaid to the Company. SECTION 5.7 Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have furnished to the Trustee, and if requested, shall have provided, reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice and receipt of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Holders of a majority in principal amount of the Outstanding Securities, it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest and to Convert. Notwithstanding any other provision in this Indenture, but subject to the provisions of Article XIII, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of, premium, if any, and (subject to Section 3.7) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on the Redemption Date or Repurchase Date, as the case may be), and to convert such Security in accordance with Article XII, and to institute suit for the enforcement of any such -44- 49 payment and right to convert, and such rights shall not be impaired without the consent of such Holder. SECTION 5.9 Restoration of Rights and Remedies. If the Trustee or any Holder of a Security has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Securities shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and such Holders shall continue as though no such proceeding had been instituted. SECTION 5.10 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article V or by law to the Trustee or to the Holders of Securities may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or (subject to the limitations contained in this Indenture) by the Holders of Securities as the case may be. SECTION 5.12 Control by Holders of Securities. Subject to Section 6.3, the Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and -45- 50 (3) the Trustee need not take any action which might involve it in personal liability or be unjustly prejudicial to the Holders of Securities not consenting. SECTION 5.13 Waiver of Past Defaults. The Holders, either (i) through the written consent of not less than a majority in principal amount of the Outstanding Securities or (ii) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least 66-2/3% in principal amount of the Outstanding Securities represented at such meeting, may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (A) in the payment of the principal of, premium, if any, or interest on any Security, or (B) in respect of a covenant or provision hereof which under Article VIII cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14 Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.14 shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder of any Security for the enforcement of the payment of the principal of, premium, if any, or interest on any Security on or after the respective Stated Maturity or Maturities expressed in such Security (or, in the case of redemption or repurchase, on or after the Redemption Date or Repurchase Date, as the case may be) or for the enforcement of the right to convert any Security in accordance with Article XII. SECTION 5.15 Waiver of Stay, Usury or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, usury or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede by reason of such law the execution of any power herein granted -46- 51 to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE VI THE TRUSTEE SECTION 6.1 Certain Duties and Responsibilities. (1) Except during the continuance of an Event of Default, (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture, but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture, but not to verify the contents thereof. (2) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (3) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (i) this paragraph (3) shall not be construed to limit the effect of paragraph (1) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (iii) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and -47- 52 (iv) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (4) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 6.2 Notice of Defaults. Within 90 days after the occurrence of any default hereunder as to which the Trustee has received written notice, the Trustee shall give to all Holders of Securities, in the manner provided in Section 1.6, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Security the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders; and provided, further, that in the case of any default of the character specified in Section 5.1(4), no such notice to Holders of Securities shall be given until at least 60 days after the occurrence thereof or, if applicable, the cure period specified therein. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 6.3 Certain Rights of Trustee. Subject to the provisions of Section 6.1: (1) the Trustee may rely, and shall be protected in acting or refraining from acting, upon any resolution, Officers' Certificate, other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document (collectively, the "Documents") believed by it to be genuine and to have been signed or presented by the proper party or parties, and the Trustee need not investigate any fact or matter stated in such Documents; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be the one specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate or Opinion of Counsel; -48- 53 (4) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities pursuant to this Indenture, unless such Holders shall have furnished and delivered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document, but the Trustee may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 6.4 Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities (except the Trustee's certificates of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture, of the Securities or of the Common Stock issuable upon the conversion of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.5 May Hold Securities, Act as Trustee under Other Indentures. The Trustee, any Authenticating Agent, any Paying Agent, any Conversion Agent or any other agent of the Company or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Conversion Agent or such other agent. The Trustee may become and act as trustee under other indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding in the same manner as if it were not Trustee hereunder. SECTION 6.6 Money Held in Trust. -49- 54 Money or property held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 6.7 Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time such reasonable compensation as the Company and the Trustee shall from time to time agree in writing for its acceptance of this Indenture and for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee (including costs and expenses of enforcing this Indenture and defending itself against any claim (whether asserted by the Company, any Holder of Securities or any other Person) or liability in connection with the exercise of any of its powers or duties hereunder) in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee (and its directors, officers, employees and agents) for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs, expenses and reasonable attorneys' fees of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.1(6) or Section 5.1(7), the expenses (including the reasonable charges of its counsel) and the compensation for the services are intended to constitute expenses of the administration under any applicable Federal or state bankruptcy, insolvency or other similar law. The provisions of this Section shall survive the termination of this Indenture or the earlier resignation or removal of the Trustee. To secure the Company's payment obligations in this Section 6.7, the Trustee shall have a claim prior to the Notes on all money and property held or collected by the Trustee other than money and property held in trust to pay principal of, premium, if any, and interest on particular Notes. SECTION 6.8 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such, having (or being part of a holding company group with) a combined capital and surplus of at least U.S. $50,000,000, subject to supervision or -50- 55 examination by federal or state authority, and in good standing. The Trustee or an Affiliate of the Trustee shall maintain an established place of business in the Borough of Manhattan, The City of New York. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article and a successor shall be appointed pursuant to Section 6.9. SECTION 6.9 Resignation and Removal; Appointment of Successor. (1) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.10. (2) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (3) The Trustee may be removed at any time by an Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and the Company. If the instrument of acceptance by a successor Trustee required by Section 6.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the removed Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (4) If at any time: (i) the Trustee shall cease to be eligible under Section 6.8 and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 5.14, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (5) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall -51- 56 promptly appoint a successor Trustee and shall comply with the applicable requirements of this Section and Section 6.10. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.10, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by this Section and Section 6.10, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (6) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders of Securities in the manner provided in Section 1.6. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 6.10 Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be eligible under this Article. SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee (including the trust created by this Indenture), shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such -52- 57 authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.12 Authenticating Agents. The Trustee may, with the consent of the Company, appoint an Authenticating Agent or Agents acceptable to the Company with respect to the Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon exchange or substitution pursuant to this Indenture. Securities authenticated by an Authenticating Agent shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder, and every reference in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be subject to acceptance by the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent and subject to supervision or examination by government or other fiscal authority. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.12, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 6.12. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section 6.12, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.12, the Trustee may appoint a successor Authenticating Agent which shall be subject to acceptance by the Company. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section 6.12. The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.12. -53- 58 If an Authenticating Agent is appointed with respect to the Securities pursuant to this Section 6.12, the Securities may have endorsed thereon, in addition to or in lieu of the Trustee's certification of authentication, an alternative certificate of authentication in the following form: This is one of the Securities referred to in the within-mentioned Indenture. NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By: ---------------------------------------- As Authenticating Agent By: ---------------------------------------- Authorized Signatory SECTION 6.13 Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.14 Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 7.1 Company May Consolidate, Etc, . Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer or lease all its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer, sell or lease such Person's properties and assets substantially as an entirety to the Company unless: (1) the Person formed by such consolidation or into or with which the Company is merged or the Person to which the properties and assets of the Company are so conveyed, transferred, sold or leased shall be a corporation, limited liability company, partnership or trust organized and validly existing under the laws of the United States of America, any State thereof or -54- 59 the District of Columbia and, if other than the Company, shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of, premium, if any, and interest on all of the Securities as applicable, and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Article XII; (2) immediately after giving effect to such transaction, no Event of Default, and no event that after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with, together with any documents required under Section 8.3. SECTION 7.2 Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into any other Person or any conveyance, transfer or lease of all or substantially all the properties and assets of the Company in accordance with Section 7.1, the successor Person formed by such consolidation or into or with which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE VIII SUPPLEMENTAL INDENTURES SECTION 8.1 Supplemental Indentures Without Consent of Holders of Securities. Without the consent of any Holders of Securities the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants and obligations of the Company herein and in the Securities as permitted by Article VII of this Indenture; or (2) to add to the covenants of the Company for the benefit of the Holders of Securities or to surrender any right or power herein conferred upon the Company; or (3) to secure the Securities; or -55- 60 (4) to make provision with respect to the conversion rights of Holders of Securities pursuant to Section 12.11 or to make provision with respect to the repurchase rights of Holders of Securities pursuant to Section 14.5; or (5) to comply with the requirements of the Trust Indenture Act or the rules and regulations of the Commission thereunder in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act, as contemplated by this Indenture or otherwise; or (6) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; or (7) subject to Section 13.12, to make any change in Article XIII that would limit or terminate the benefits available to any holder of Senior Debt under such Article; or (8) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under this Indenture as the Company and the Trustee may deem necessary or desirable, provided such action pursuant to this clause (8) shall not adversely affect the interests of the Holders of Securities in any material respect. Upon Company Request, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and subject to and upon receipt by the Trustee of the documents described in Section 8.3 hereof, the Trustee shall join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained. SECTION 8.2 Supplemental Indentures with Consent of Holders of Securities. With either (i) the written consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by the Act of said Holders delivered to the Company and the Trustee, or (ii) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least 66-2/3% in principal amount of the Outstanding Securities represented at such meeting, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities under this Indenture; provided, however, that no such supplemental indenture shall, without the consent or affirmative vote of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest on, any Security, or reduce the principal amount of, or the premium, if any, or the rate of interest payable thereon, or reduce the amount payable upon a redemption or mandatory repurchase, or change the place or currency of payment of the principal of, premium, if any, or interest on any Security (including any payment of Redemption Price or Repurchase Price in respect of such Security) or impair the right to institute suit for the enforcement of any payment in respect of any Security on or -56- 61 after the Stated Maturity thereof (or, in the case of redemption or any repurchase, on or after the Redemption Date or Repurchase Date, as the case may be) or, except as permitted by Section 12.11, adversely affect the right of Holders to convert any Security as provided in Article XII, or modify the provisions of this Indenture with respect to the subordination of the Securities in a manner adverse to the Holders; or (2) reduce the requirements of Section 9.4 for quorum or voting, or reduce the percentage in principal amount of the Outstanding Securities the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture; or (3) modify the obligation of the Company to maintain an office or agency in the Borough of Manhattan, The City of New York, pursuant to Section 10.2; or (4) modify any of the provisions of this Section or Section 5.13 or 10.12, except to increase any percentage contained herein or therein or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or (5) modify the provisions of Article XIV in a manner adverse to the Holders. It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 8.3 Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Sections 6.1 and 6.3) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture, and that such supplemental indenture has been duly authorized, executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company enforceable against the Company in accordance with its terms. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 8.4 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder appertaining thereto shall be bound thereby. -57- 62 SECTION 8.5 Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Company and the Trustee, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 8.6 Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 8.2, the Company shall give notice to all Holders of Securities of such fact, setting forth in general terms the substance of such supplemental indenture, in the manner provided in Section 1.6. Any failure of the Company to give such notice, or any defect therein, shall not in any way impair or affect the validity of any such supplemental indenture. ARTICLE IX MEETINGS OF HOLDERS OF SECURITIES SECTION 9.1 Purposes for Which Meetings May Be Called. A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities. SECTION 9.2 Call, Notice and Place of Meetings. (1) The Trustee may at any time call a meeting of Holders of Securities for any purpose specified in Section 9.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York, as the Trustee shall determine. Notice of every meeting of Holders of Securities, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.6, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (2) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Securities shall have requested the Trustee to call a meeting of the Holders of Securities for any purpose specified in Section 9.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities in the amount specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York, for such meeting and may call such meeting for such purposes by giving notice thereof as provided in paragraph (1) of this Section. -58- 63 SECTION 9.3 Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities, a Person shall be (i) a Holder of one or more Outstanding Securities, or (ii) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 9.4 Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities, be dissolved. In any other case, the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting (subject to repeated applications of this sentence). Notice of the reconvening of any adjourned meeting shall be given as provided in Section 9.2(1), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage of the principal amount of the Outstanding Securities which shall constitute a quorum. Subject to the foregoing, at the reconvening of any meeting adjourned for a lack of a quorum, the Persons entitled to vote 25% in principal amount of the Outstanding Securities at the time shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. At a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid, any resolution and all matters (except as limited by the proviso to Section 8.2 and except to the extent Section 10.12 requires a different vote) shall be effectively passed and decided if passed or decided by the lesser of (i) the Holders of not less than a majority in principal amount of Outstanding Securities and (ii) the Persons entitled to vote not less than 66-2/3% in principal amount of Outstanding Securities represented and entitled to vote at such meeting. Any resolution passed or decisions taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities whether or not present or represented at the meeting. The Trustee shall, in the name and at the expense of the Company, notify all the Holders of Securities of any such resolutions or decisions pursuant to Section 1.6. SECTION 9.5 Determination of Voting Rights; Conduct and Adjournment of Meetings. (1) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities in regard to -59- 64 proof of the holding of Securities and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4 or by having the signature of the Person executing the proxy guaranteed by any bank, broker or other eligible institution participating in a recognized medallion signature guarantee program. (2) The Trustee shall, by an instrument in writing, appoint a temporary chairman (which may be the Trustee) of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 9.2(1), in which case the Company or the Holders of Securities calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting. (3) At any meeting, each Holder of a Security or proxy shall be entitled to one vote for each U.S. $1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security or proxy. (4) Any meeting of Holders of Securities duly called pursuant to Section 9.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting, and the meeting may be held as so adjourned without further notice. SECTION 9.6 Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amounts at Stated Maturity and serial numbers of the Outstanding Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 9.2 and, if applicable, Section 9.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots -60- 65 voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE X COVENANTS SECTION 10.1 Payment of Principal, Premium and Interest. The Company covenants and agrees that it will duly and punctually pay the principal of and premium, if any, and interest on the Securities in accordance with the terms of the Securities and this Indenture. The Company will deposit or cause to be deposited with the Trustee, no later than the opening of business on the date of the Stated Maturity of any Security or no later than the opening of business on the due date for any installment of interest, all payments so due, which payments shall be in immediately available funds on the date of such Stated Maturity or due date, as the case may be. SECTION 10.2 Maintenance of Offices or Agencies. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where the Securities may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion, redemption or repurchase and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency not designated or appointed by the Trustee. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office or the office or agency of the Trustee in the Borough of Manhattan, The City of New York. The Company may at any time and from time to time vary or terminate the appointment of any such agent or appoint any additional agents for any or all of such purposes; provided, however, that until all of the Securities have been delivered to the Trustee for cancellation, or moneys sufficient to pay the principal of, premium, if any, and interest on the Securities have been made available for payment and either paid or returned to the Company pursuant to the provisions of Section 10.3, the Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment and conversion where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee, and notice to the Holders in accordance with Section 1.6, of the appointment or termination of any such agents and of the location and any change in the location of any such office or agency. The Company hereby initially designates the Trustee as Paying Agent, Security Registrar and Conversion Agent, and each of the Corporate Trust Office of the Trustee and the office or agency of the Trustee in the Borough of Manhattan, The City of New York, located at Norwest Corporate -61- 66 Trust, c/o Depository Trust Company, 1st Floor, TADS Department, 55 Water Street, New York, New York 10041, Attention: Corporate Trust Administration (Juniper Networks, Inc. __% Convertible Subordinated Notes due March 15, 2007) as one such office or agency of the Company for each of the aforesaid purposes. SECTION 10.3 Money for Security Payments to Be Held in Trust. If the Company shall act as its own Paying Agent, it will, on or before each due date of the principal of, premium, if any, or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and the Company will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, no later than the opening of business on each due date of the principal of, premium, if any, or interest on any Securities, deposit with the Trustee a sum in funds immediately payable on the payment date sufficient to pay the principal, premium, if any, or interest so becoming due, such sum to be held for the benefit of the Persons entitled to such principal, premium, if any, or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of any failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal, premium, if any, or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall -62- 67 be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. SECTION 10.4 Existence. Subject to Article VII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.5 Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Significant Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Significant Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.6 Payment of Taxes and Other Claims. The Company will pay or discharge, or cause to be paid or discharged, before the same may become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or any Significant Subsidiary or upon the income, profits or property of the Company or any Significant Subsidiary, (ii) all claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon the property of the Company or any Significant Subsidiary, and (iii) all stamps and other duties, if any, which may be imposed by the United States or any political subdivision thereof or therein in connection with the issuance, transfer, exchange or conversion of any Securities or with respect to this Indenture; provided, however, that, in the case of clauses (i) and (ii), the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (A) if the failure to do so will not, in the aggregate, have a material adverse impact on the Company, or (B) if the amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 10.7 Reserved. SECTION 10.8 Statement by Officers as to Default. -63- 68 The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. The Company will deliver to the Trustee, forthwith upon becoming aware of any default or any Event of Default under the Indenture, an Officers' Certificate specifying with particularity such default or Event of Default and further stating what action the Company has taken, is taking or proposes to take with respect thereto. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. Any notice required to be given under this Section 10.8 shall be delivered to the Trustee at its Corporate Trust Office. SECTION 10.9 Reserved. SECTION 10.10 Reserved. SECTION 10.11 Reserved. SECTION 10.12 Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Sections 10.4 (other than with respect to the existence of the Company (subject to Article VII)), 10.5 and 10. 6, inclusive (other than a covenant or condition which under Article VIII cannot be modified or amended without the consent of the Holder of each Outstanding Security affected), if before the time for such compliance the Holders shall, through (i) the written consent of not less than a majority in principal amount of the Outstanding Securities, or (ii) the adoption of a resolution at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of not less than 66 2/3% in principal amount of the Outstanding Securities represented at such meeting, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee or any Paying or Conversion Agent in respect of any such covenant or condition shall remain in full force and effect. ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.1 Right of Redemption. The Securities may be redeemed in accordance with the provisions of the form of Securities set forth in Section 2.2. -64- 69 SECTION 11.2 Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of the Securities or this Indenture, shall be made in accordance with such provision and this Article XI. SECTION 11.3 Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of any of the Securities, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date. SECTION 11.4 Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected by the Trustee within five Business Days after it receives the notice described in 11.3, from the Outstanding Securities not previously called for redemption, by lot or by such other method as the Trustee may deem fair and appropriate. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection. The Trustee shall promptly notify the Company and each Security Registrar in writing of the securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.5 Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 1.6 to the Holders of Securities to be redeemed not less than 30 nor more than 60 days prior to the Redemption Date, and such notice shall be irrevocable. The Company shall, concurrently with the giving of such notice, publish a Press Release including the information required to be included in such notice of redemption hereunder. All notices of redemption shall state: (1) the Redemption Date, -65- 70 (2) the Redemption Price, and accrued interest, if any, to the Redemption Date, (3) if less than all Outstanding Securities are to be redeemed, the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities which will be outstanding after such partial redemption, (4) that on the Redemption Date the Redemption Price, and accrued interest, if any, to the Redemption Date, will become due and payable upon each such Security to be redeemed, and that interest thereon shall cease to accrue on and after said date, (5) the Conversion Rate, the date on which the right to convert the Securities to be redeemed will terminate and the places where such Securities may be surrendered for conversion, and (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued interest, if any, to the Redemption Date. In case of a partial redemption, the notice shall specify the serial and CUSIP numbers (if any) and the portions thereof called for redemption and that transfers and exchanges may occur on or prior to the Redemption Date. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name of and at the expense of the Company. Notice of redemption of Securities to be redeemed at the election of the Company received by the Trustee shall be given by the Trustee to each Paying Agent in the name of and at the expense of the Company. SECTION 11.6 Deposit of Redemption Price. On or prior to the Redemption Date, the Company shall deposit with the Trustee (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money (which shall be in immediately available funds on such Redemption Date) sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest to the Redemption Date on, all the Securities which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the date of such deposit. If any Security called for redemption is converted, any money deposited with the Trustee or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the last paragraph of Section 3.7) be paid to the Company on Company Request or, if then held by the Company, shall be discharged from such trust. SECTION 11.7 Securities Payable on Redemption Date. -66- 71 Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price, including accrued interest) such Securities shall cease to bear interest. Upon surrender of any Security for redemption in accordance with said notice such Security shall be paid by the Company at the Redemption Price together with accrued and unpaid interest to the Redemption Date; provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 3.7. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal amount of, premium, if any, and, to the extent permitted by applicable law, accrued interest on such Security shall, until paid, bear interest from the Redemption Date at a rate of __% per annum and such Security shall remain convertible until the Redemption Price of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for. Any Security which is to be redeemed only in part shall be surrendered at the Corporate Trust Office or an office or agency of the Company designated for that purpose pursuant to Section 10.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. SECTION 11.8 Conversion Arrangement on Call for Redemption. In connection with any redemption of Securities, the Company may arrange for the purchase and conversion of any Securities by an agreement with one or more investment bankers or other purchasers (the "Purchasers") to purchase such securities by paying to the Trustee in trust for the Holders, on or before the Redemption Date, an amount not less than the applicable Redemption Price, together with interest accrued to the Redemption Date, of such Securities. Notwithstanding anything to the contrary contained in this Article XI, the obligation of the Company to pay the Redemption Price, together with interest accrued to the Redemption Date, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such Purchasers. If such an agreement is entered into (a copy of which shall be filed with the Trustee prior to the close of business on the Business Day immediately prior to the Redemption Date), any Securities called for redemption that are not duly surrendered for conversion by the Holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, and consistent with any agreement or agreements with such Purchasers, to be acquired by such Purchasers from such Holders and (notwithstanding anything to the contrary contained in Article XII) surrendered by such Purchasers for conversion, all as of immediately prior to the close of business on the Redemption Date (and the -67- 72 right to convert any such Securities shall be extended through such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it by the Purchasers to the Holders in the same manner as it would monies deposited with it by the Company for the redemption of Securities. Without the Trustee's prior written consent, no arrangement between the Company and such Purchasers for the purchase and conversion of any Securities shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Securities between the Company and such Purchasers, including the costs and expenses, including reasonable legal fees, incurred by the Trustee in the defense of any claim or liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. ARTICLE XII CONVERSION OF SECURITIES SECTION 12.1 Conversion Privilege and Conversion Rate. Subject to and upon compliance with the provisions of this Article, at the option of the Holder thereof, any Security may be converted into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock of the Company at the Conversion Rate, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall commence on the initial issuance date of the Securities and expire at the close of business on the date of Maturity, subject, in the case of conversion of any Global Security, to any Applicable Procedures. In case a Security or portion thereof is called for redemption at the election of the Company or the Holder thereof exercises his right to require the Company to repurchase the Security, such conversion right in respect of the Security, or portion thereof so called, shall expire at the close of business on the Business Day immediately preceding the Redemption Date or the Repurchase Date, as the case may be, unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be (in each case subject as aforesaid to any Applicable Procedures with respect to any Global Security). The rate at which shares of Common Stock shall be delivered upon conversion (herein called the "Conversion Rate") shall be initially [_____] shares of Common Stock for each U.S.$1,000 principal amount of Securities. The Conversion Rate shall be adjusted in certain instances as provided in this Article XII. SECTION 12.2 Exercise of Conversion Privilege. In order to exercise the conversion privilege, the Holder of any Security to be converted shall surrender such Security, duly endorsed in blank, at any office or agency of the Company maintained for that purpose pursuant to Section 10.2, accompanied by a duly signed conversion notice substantially in the form set forth in Section 2.4 stating that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to -68- 73 be converted. Each Security surrendered for conversion (in whole or in part) during the Record Date Period shall (except in the case of any Security or portion thereof which has been called for redemption on a Redemption Date, or is repurchasable on a Repurchase Date, occurring, in either case, within such Record Date Period and, as a result, the right to convert such Security would otherwise terminate in such period if not exercised) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security (or part thereof, as the case may be) being surrendered for conversion. The interest so payable on such Interest Payment Date with respect to any Security (or portion thereof, if applicable) which is surrendered for conversion during the Record Date Period shall be paid to the Holder of such Security as of such Regular Record Date in an amount equal to the interest that would have been payable on such Security if such Security had been converted as of the close of business on such Interest Payment Date. Interest payable on any Interest Payment Date in respect of any Security surrendered for conversion on or after such Interest Payment Date shall be paid to the Holder of such Security as of the Regular Record Date next preceding such Interest Payment Date, notwithstanding the exercise of the right of conversion. Except as provided in this paragraph and subject to the last paragraph of Section 3.7, no cash payment or adjustment shall be made upon any conversion on account of any interest accrued from the Interest Payment Date next preceding the conversion date, in respect of any Security (or part thereof, as the case may be) surrendered for conversion, or on account of any dividends on the Common Stock issued upon conversion. The Company's delivery to the Holder of the number of shares of Common Stock (and cash in lieu of fractions thereof, as provided in this Indenture) into which a Security is convertible will be deemed to satisfy the Company's obligation to pay the principal amount of the Security. Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall issue and deliver to the Trustee, for delivery to the Holder, a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 12.3. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in an aggregate principal amount equal to the unconverted portion of the principal amount of such Security. A Security may be converted in part, but only if the principal amount of such Security to be converted is any integral multiple of U.S. $1,000 and the principal amount of such security to remain Outstanding after such conversion is equal to U.S. $1,000 or any integral multiple of $1,000 in excess thereof. SECTION 12.3 Fractions of Shares. No fractional shares of Common Stock shall be issued upon conversion of any Security or Securities. If more than one Security shall be surrendered for conversion at one time by the same -69- 74 Holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Security or Securities (or specified portions thereof), the Company shall calculate and pay a cash adjustment in respect of such fraction (calculated to the nearest 1/100th of a share) in an amount equal to the same fraction of the Closing Price Per Share at the close of business on the day of conversion. SECTION 12.4 Adjustment of Conversion Rate. The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case the Company shall pay or make a dividend or other distribution on shares of any class of capital stock payable in shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. If, after any such date fixed for determination, any dividend or distribution is not in fact paid, the Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors determines not to pay such dividend or distribution, to the Conversion Rate that would have been in effect if such determination date had not been fixed. For the purposes of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) In case the Company shall issue rights, options or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 12.4) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights, options or warrants (other than any rights, options or warrants that by their terms will also be issued to any Holder upon conversion of a Security into shares of Common Stock without any action required by the Company or any other Person), the Conversion Rate in effect at the opening of business on the day following the date fixed for such determination shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common -70- 75 Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. If, after any such date fixed for determination, any such rights, options or warrants are not in fact issued, or are not exercised prior to the expiration thereof, the Conversion Rate shall be immediately readjusted, effective as of the date such rights, options or warrants expire, or the date the Board of Directors determines not to issue such rights, options or warrants, to the Conversion Rate that would have been in effect if the unexercised rights, options or warrants had never been granted or such determination date had not been fixed, as the case may be. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options or warrants in respect of shares of Common Stock held in the treasury of the Company. (3) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision or combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class of capital stock or other property (including cash or assets or securities, but excluding (i) any rights, options or warrants referred to in paragraph (2) of this Section, (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section and (iv) any consideration distributed in any merger or consolidation to which Section 12.11 applies), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 12.4) of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of directors, whose determination shall be conclusive and described in a Board Resolution filed with the Trustee) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. If after any such date fixed for determination, any such distribution is not in fact made, the Conversion Rate shall be immediately readjusted, effective as of the date of the Board of Directors determines not to make such distribution, to the Conversion Rate that would have been in effect if such determination date had not been fixed. -71- 76 (5) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed as part of a distribution referred to in paragraph (4) of this Section or cash distributed upon a merger or consolidation to which Section 12.11 applies) in an aggregate amount that, combined together with (I) the aggregate amount of any other all-cash distributions to all holders of its Common Stock made exclusively in cash within the 365-day period preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this paragraph (5) has been made and (II) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offer by the Company or any of its Subsidiaries for all or any portion of the Common Stock concluded within the 365-day period preceding the date of payment of such distribution and in respect of which no adjustment pursuant to paragraph (6) of this Section 12.4 has been made (the "combined cash and tender amount") exceeds 10% of the product of the current market price per share (determined as provided in paragraph (8) of this Section 12.4) of the Common Stock on the date for the determination of holders of shares of Common Stock entitled to receive such distribution times the number of shares of Common Stock outstanding on such date (the "aggregate current market price"), then, and in each such case, immediately after the close of business on such date for determination, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the date fixed for determination of the stockholders entitled to receive such distribution by a fraction (i) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section) of the Common Stock on the date fixed for such determination less an amount equal to the quotient of (x) the excess of such combined cash and tender amount over 10% of such aggregate current market price divided by (y) the number of shares of Common Stock outstanding on such date for determination and (ii) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 12.4) of the Common Stock on such date fixed for determination. (6) In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (I) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender offer, of consideration payable in respect of any other tender offer by the Company or any Subsidiary for all or any portion of the Common Stock expiring within the 365-day period preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this paragraph (6) has been made and (II) the aggregate amount of any cash distributions to all holders of the Common Stock within 365-day period preceding the expiration of such tender offer and in respect of which no adjustment pursuant to paragraph (5) of this Section has been made (the "combined tender and cash amount") exceeds 10% of the product of the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 12.4) as of the last time (the "Expiration Time") tenders -72- 77 could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time, then, and in each such case immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate immediately prior to close of business on the date of the Expiration Time by a fraction (i) the numerator of which shall be equal to (A) the product of (I) the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 12.4) on the date of the Expiration Time multiplied by (II) the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time less (B) the combined tender and cash amount, and (ii) the denominator of which shall be equal to the product of (A) the current market price per share of the Common Stock (determined as provided in paragraph (8) of this Section 12.4) as of the Expiration Time multiplied by (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Expiration Time less the number of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted up to any such maximum, being referred to as the "Purchased Shares"). (7) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 12.11 applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and "the date fixed for such determination" within the meaning of paragraph (4) of this Section), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 12.4). (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 12.4, the current market price per share of Common Stock on any date shall be calculated by the Company and be the average of the daily Closing Prices Per Share for the five consecutive Trading Days selected by the Company commencing not more than 10 Trading Days before, and ending not later than the earlier of the day in question and the day before the "ex" date with respect to the issuance or distribution requiring such computation. For purposes of this paragraph, the term "'ex' date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; provided, however, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into -73- 78 account in any subsequent adjustment. All calculations under this Article shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may make such increases in the Conversion Rate, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 12.4, as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes. The Company shall have the power to resolve any ambiguity or correct any error in this paragraph (10) and its actions in so doing shall, absent manifest error, be final and conclusive. (11) Notwithstanding the foregoing provisions of this Section, no adjustment of the Conversion Rate shall be required to be made (a) upon the issuance of shares of Common Stock pursuant to any present or future plan for the reinvestment of dividends or (b) because of a tender or exchange offer of the character described in Rule 13e-4(h)(5) under the Exchange Act or any successor rule thereto. (12) To the extent permitted by applicable law, the Company from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least twenty (20) days, the increase is irrevocable during such period, and the Board of Directors shall have made a determination that such increase would be in the best interests of the Company, which determination shall be conclusive; provided, however, that no such increase shall be taken into account for purposes of determining whether the Closing Price Per Share of the Common Stock equals or exceeds 105% of the Conversion Price in connection with an event which would otherwise be a Change of Control pursuant to Section 14.4. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Company shall give notice of the increase to the Holders in the manner provided in Section 1.6 at least fifteen (15) days prior to the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period during which it will be in effect. SECTION 12.5 Notice of Adjustments of Conversion Rate. Whenever the Conversion Rate is adjusted as herein provided: (1) the Company shall compute the adjusted Conversion Rate in accordance with Section 12.4 and shall prepare a certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall promptly be filed with the Trustee and with each Conversion Agent; and (2) upon each such adjustment, a notice stating that the Conversion Rate has been adjusted and setting forth the adjusted Conversion Rate shall be required, and as soon as practicable after it is required, such notice shall be provided by the Company to all Holders in accordance with Section 1.6. -74- 79 Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate or the information and calculations contained therein, except to exhibit the same to any Holder of Securities desiring inspection thereof at its office during normal business hours, and shall not be deemed to have knowledge of any adjustment in the Conversion Rate unless and until a Responsible Officer of the Trustee shall have received such a certificate. Until a Responsible Officer of the Trustee receives such a certificate, the Trustee and each Conversion Agent may assume without inquiry that the last Conversion Rate of which the Trustee has knowledge of remains in effect. SECTION 12.6 Notice of Certain Corporate Action. In case: (1) the Company shall declare a dividend (or any other distribution) on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 12.4; or (2) the Company shall authorize the granting to all or substantially all of the holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any stockholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 10.2, and shall cause to be provided to all Holders in accordance with Section 1.6, at least 20 days (or 10 days in any case specified in clause (1) or (2) above) prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice or the notice referred to in the following paragraph nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (4) of this Section 12.6. If at the time the Trustee shall not be the conversion agent, a copy of such notice shall also forthwith be filed by the Company with the Trustee. -75- 80 The Company shall cause to be filed at the Corporate Trust Office and each office or agency maintained for the purpose of conversion of Securities pursuant to Section 10.2, and shall cause to be provided to all Holders in accordance with Section 1.6, notice of any tender offer by the Company or any Subsidiary for all or any portion of the Common Stock at or about the time that such notice of tender offer is provided to the public generally. SECTION 12.7 Company to Reserve Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of Common Stock then issuable upon the conversion of all Outstanding Securities. SECTION 12.8 Taxes on Conversions. Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. SECTION 12.9 Covenant as to Common Stock. The Company agrees that all shares of Common Stock which may be delivered upon conversion of Securities, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable and, except as provided in Section 12.8, the Company will pay all taxes, liens and charges with respect to the issue thereof. SECTION 12.10 Cancellation of Converted Securities. All Securities delivered for conversion shall be delivered to the Trustee or its agent to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 3.9. SECTION 12.11 Provision in Case of Consolidation, Merger or Sale of Assets. In case of any consolidation or merger of the Company with or into any other Person, any merger of another Person with or into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the assets of the Company, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture -76- 81 providing that the Holder of each Security then Outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 12.1, to convert such Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by a holder of the number of shares of Common Stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (i) is not (A) a Person with which the Company consolidated or merged with or into or which merged into or with the Company or to which such conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or (B) an Affiliate of a Constituent Person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 12.11 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-electing Shares). Such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section 12.11 shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. Notice of the execution of such a supplemental indenture shall be given by the Company to the Holder of each Security as provided in Section 1.6 promptly upon such execution. Neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any such supplemental indenture relating either to the kind or amount of shares of stock or other securities or property or cash receivable by Holders of Securities upon the conversion of their Securities after any such consolidation, merger, conveyance, transfer, sale or lease or to any such adjustment, but may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, an Opinion of Counsel with respect thereto, which the Company shall cause to be furnished to the Trustee upon request. SECTION 12.12 Rights Issued in Respect of Common Stock. Rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"): (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable, and -77- 82 (iii) are also issued in respect of future issuances of Common Stock shall not be deemed distributed for purposes of Section 12.4(2) until the occurrence of the earliest Trigger Event. In addition, in the event of any distribution of rights or warrants, or any Trigger Event with respect thereto, that shall have resulted in an adjustment to the Conversion Rate under Section 12.4(2), (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Rate shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of any such rights or warrants all of which shall have expired without exercise by any holder thereof, the Conversion Price shall be readjusted as if such issuance had not occurred. SECTION 12.13 Responsibility of Trustee for Conversion Provisions. The Trustee, subject to the provisions of Section 6.1, and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Rate, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, herein or in any supplemental indenture provided to be employed, in making the same, or whether a supplemental indenture need be entered into. Neither the Trustee, subject to the provisions of Section 6.1, nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind or amount) of any Common Stock, or of any other securities or property or cash, which may at any time be issued or delivered upon the conversion of any Security; and it or they do not make any representation with respect thereto. Neither the Trustee, subject to the provisions of Section 6.1, nor any Conversion Agent shall be responsible for any failure of the Company to make or calculate any cash payment or to issue, transfer or deliver any shares of Common Stock or share certificates or other securities or property or cash upon the surrender of any Security for the purpose of conversion; and the Trustee, subject to the provisions of Section 6.1, and any Conversion Agent shall not be responsible for any failure of the Company to comply with any of the covenants of the Company contained in this Article. ARTICLE XIII SUBORDINATION OF SECURITIES SECTION 13.1 Securities Subordinate to Senior Debt. The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject to the provisions of Article IV), the indebtedness represented by the Securities and the payment of the principal of, or premium, if any, or interest on, each and all of the Securities (including, but not limited to, the Redemption Price with respect to the Securities to be called for redemption in accordance with Article XI or the Repurchase Price with respect to Securities -78- 83 submitted for repurchase in accordance with Article XIV), are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all Senior Debt. SECTION 13.2 No Payment in Certain Circumstances, Payment over of Proceeds upon Dissolution, Etc. No payment shall be made with respect to the principal of, or premium, if any, or interest on the Securities (including, but not limited to, the Redemption Price with respect to the Securities to be called for redemption in accordance with Article XI or the Repurchase Price with respect to Securities submitted for repurchase in accordance with Article XIV), except payments and distributions made by the Trustee as permitted by Section 13.9, if: (i) a default in the payment of principal, premium, if any, or interest (including a default under any repurchase or redemption obligation) or other amounts with respect to any Senior Debt occurs and is continuing (or, in the case of Senior Debt for which there is a period of grace, in the event of such a default that continues beyond the period of grace, if any, specified in the instrument or lease evidencing such Senior Debt) unless and until such default shall have been cured or waived or shall have ceased to exist; or (ii) any other event of default occurs and is continuing with respect to Designated Senior Debt that then permits holders of such Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from a Representative or holder of Designated Senior Debt or the Company. If the Trustee receives any Payment Blockage Notice pursuant to clause (ii) above, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until (A) at least 365 days shall have elapsed since the initial effectiveness of the immediately prior Payment Blockage Notice, and (B) all scheduled payments of principal, premium, if any, and interest on the Securities that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. The Company may and shall resume payments on and distributions in respect of the Securities upon the earlier of: (1) in the case of a default referred to in clause (i) above, the date upon which the default is cured or waived or ceases to exist, or (2) in the case of a default referred to in clause (ii) above, the date upon which the default is cured or waived or ceases to exist or 179 days pass after notice is received if the maturity of such Designated Senior Debt has not been accelerated, unless this Article XIII otherwise prohibits the payment or distribution at the time of such payment or distribution. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the -79- 84 Company or to its creditors, as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Company, then and in any such event the holders of Senior Debt shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Debt in cash before the Holders of the Securities are entitled to receive any payment on account of principal of (or premium, if any) or interest on the Securities or on account of the purchase, redemption or other acquisition of Securities, and to that end the holders of Senior Debt shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, which may be payable or deliverable in respect of the Securities in any such case, proceeding, dissolution, liquidation or other winding up or event. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, securities or other property, before all Senior Debt is paid in full, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. For purposes of this Article only, the words "cash, securities or other property" shall not be deemed to include shares of capital stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, which shares of stock or securities are subordinated in right of payment to all then outstanding Senior Debt to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article VII shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or which acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article VII. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company, in the case of the Trustee, or the Trustee, in the case of such Holder. -80- 85 SECTION 13.3 Prior Payment to Senior Debt upon Acceleration of Securities. In the event of the acceleration of the Securities because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Securities in respect of the principal of, premium, if any, or interest on the Securities (including, but not limited to, the Redemption Price with respect to the Securities called for redemption in accordance with Article XI or the Repurchase Price with respect to the Securities submitted for repurchase in accordance with Article XIV), except payments and distributions made by the Trustee as permitted by Section 13.9, until all Senior Debt has been paid in full in cash or other payment satisfactory to the holders of Senior Debt or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. SECTION 13.4 Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Company referred to in Section 13.2, or during the circumstances referred to in the first paragraph of Section 13.2, or under the conditions described in Section 13.3, from making payments at any time of principal of (and premium, if any) or interest on the Securities, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of (and premium, if any) or interest on the Securities or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article. SECTION 13.5 Subrogation to Rights of Holders of Senior Debt. Subject to the payment in full of all Senior Debt, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Debt pursuant to the provisions of this Article to the rights of the holders of such Senior Debt to receive payments and distributions of cash, property and securities applicable to the Senior Debt until the principal of (and premium, if any) and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Debt by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Debt and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt. SECTION 13.6 Provisions Solely to Define Relative Rights. -81- 86 The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Debt on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (i) impair, as among the Company, its creditors other than holders of Senior Debt and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (ii) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Debt; or (iii) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Debt to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 13.7 Trustee to Effectuate Subordination. Each Holder of a Security by its acceptance thereof authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee its attorney-in-fact for any and all such purposes. SECTION 13.8 No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt, or otherwise amend or supplement in any manner Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in any manner for the collection of Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 13.9 Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the -82- 87 Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a Representative or a holder of Senior Debt (including, without limitation, a holder of Designated Senior Debt) and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 6.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 13.9 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within one Business Day prior to such date. Notwithstanding anything in this Article XIII to the contrary, nothing shall prevent any payment by the Trustee to the Holders of monies deposited with it pursuant to Section 4.1, and any such payment shall not be subject to the provisions of Section 13.2 or 13.3. Subject to the provisions of Section 6.1, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a Representative or a holder of Senior Debt (including, without limitation, a holder of Designated Senior Debt) to establish that such notice has been given by a Representative or a holder of Senior Debt (including, without limitation, a holder of Designated Senior Debt). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 6.1, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. -83- 88 SECTION 13.11 Trustee Not Fiduciary for Holders of Senior Debt. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Debt shall be entitled by virtue of this Article or otherwise. SECTION 13.12 Reliance by Holders of Senior Debt on Subordination Provisions. Each Holder by accepting a Security acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Debt, whether such Senior Debt was created or acquired before or after the issuance of the Securities, to acquire and continue to hold, or to continue to hold, such Senior Debt and such holder of Senior Debt shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Debt, and no amendment or modification of the provisions contained herein shall diminish the rights of such holders of Senior Debt unless such holders shall have agreed in writing thereto. SECTION 13.13 Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Debt which may at any time be held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.7. SECTION 13.14 Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 13.13 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 13.15 Certain Conversions and Repurchases Deemed Payment. For the purposes of this Article only, (i) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article XII or upon the repurchase of Securities in accordance with Article XIV shall not be deemed to constitute a payment or distribution on account of the principal of or premium or interest on Securities or on account of the purchase or other -84- 89 acquisition of Securities, and (ii) the payment, issuance or delivery of cash (except in satisfaction of fractional shares pursuant to Section 12.3 or 14.3(7)), property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such Security. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company and securities into which the Securities are convertible pursuant to Article XII and (b) securities of the Company which are subordinated in right of payment to all Senior Debt which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Debt and the Holders of the Securities, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article XII or to exchange such Security for Common Stock in accordance with Article XIV if the Company elects to satisfy the obligations under Article XIV by the delivery of Common Stock. ARTICLE XIV REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE IN CONTROL SECTION 14.1 Right to Require Repurchase. In the event that a Change in Control (as hereinafter defined) shall occur, then each Holder shall have the right, at the Holder's option, but subject to the provisions of Section 14.2, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, all of such Holder's Securities not theretofore called for redemption, or any portion of the principal amount thereof that is equal to U.S. $1,000 or any integral multiple of U.S. $1,000 in excess thereof (provided that no single Security may be repurchased in part unless the portion of the principal amount of such Security to be Outstanding after such repurchase is equal to U.S. $1,000 or integral multiples of U.S. $1,000 in excess thereof), on the date (the "Repurchase Date") that is 45 days after the date of the Company Notice (as defined in Section 14.3) at a purchase price equal to 100% of the principal amount of the Securities to be repurchased plus interest accrued to the Repurchase Date (the "Repurchase Price"); provided, however, that installments of interest on Securities whose Stated Maturity is on or prior to the Repurchase Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 3.7. Such right to require the repurchase of the Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article IV, unless a Change in Control shall have occurred prior to such discharge. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the fulfillment by the Company of the conditions set forth in Section 14.2, by delivery of shares of Common Stock having a fair market value equal to the Repurchase Price. Whenever in this Indenture (including Sections 2.2, 3.1, 5.1(1) and 5.8) there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision -85- 90 of this Indenture shall not be construed as excluding the Repurchase Price in those provisions of this Indenture when such express mention is not made; provided, however, that for the purposes of Article XIII such reference shall be deemed to include reference to the Repurchase Price only to the extent the Repurchase Price is payable in cash. SECTION 14.2 Conditions to the Company's Election to Pay the Repurchase Price in Common Stock. The Company may elect to pay the Repurchase Price by delivery of shares of Common Stock pursuant to Section 14.1 if and only if the following conditions shall have been satisfied: (1) The shares of Common Stock deliverable in payment of the Repurchase Price shall have a fair market value as of the Repurchase Date of not less than the Repurchase Price. For purposes of Section 14.1 and this Section 14.2, the fair market value of shares of Common Stock shall be determined by the Company and shall be equal to 95% of the average of the Closing Prices Per Share of the Common Stock for the five consecutive Trading Days immediately preceding and including the third Trading Day prior to the Repurchase Date; (2) The Repurchase Price shall be paid only in cash in the event any shares of Common Stock to be issued upon repurchase of Securities hereunder (i) require registration under any federal securities law before such shares may be freely transferable without being subject to any transfer restrictions under the Securities Act upon repurchase and if such registration is not completed or does not become effective prior to the Repurchase Date, and/or (ii) require registration with or approval of any governmental authority under any state law or any other federal law before such shares may be validly issued or delivered upon repurchase and if such registration is not completed or does not become effective or such approval is not obtained prior to the Repurchase Date; (3) Payment of the Repurchase Price may not be made in Common Stock unless such stock is, or shall have been, approved for quotation on the Nasdaq National Market or listed on a national securities exchange, in either case, prior to the Repurchase Date; and (4) All shares of Common Stock which may be issued upon repurchase of Securities will be issued out of the Company's authorized but unissued Common Stock and, will upon issue, be duly and validly issued and fully paid and non-assessable and free of any preemptive or similar rights. If all of the conditions set forth in this Section 14.2 are not satisfied in accordance with the terms thereof, the Repurchase Price shall be paid by the Company only in cash. SECTION 14.3 Notices; Method of Exercising Repurchase Right, Etc. (1) Unless the Company shall have theretofore called for redemption all of the Outstanding Securities, on or before the 30th day after the occurrence of a Change in Control, the Company or, at the request and expense of the Company on or before the 15th day after such occurrence, the Trustee, shall give to all Holders of Securities, in the manner provided in Section 1.6, notice (the "Company Notice") of the occurrence of the Change of Control and of the repurchase -86- 91 right set forth herein arising as a result thereof and the Company shall issue a Press Release including the information required to be included in such Company Notice hereunder. The Company shall also deliver a copy of such Company Notice to the Trustee. Each Company Notice shall state: (i) the Repurchase Date, (ii) the date by which the repurchase right must be exercised, (iii) the Repurchase Price, and whether the Repurchase Price shall be paid by the Company in cash or by delivery of shares of Common Stock, (iv) a description of the procedure which a Holder must follow to exercise a repurchase right, and the place or places where such Securities are to be surrendered for payment of the Repurchase Price and accrued interest, if any to the Repurchase Date, (v) that on the Repurchase Date the Repurchase Price, and accrued interest, if any to the Repurchase Date, will become due and payable upon each such Security designated by the Holder to be repurchased, and that interest thereon shall cease to accrue on and after said date, (vi) the Conversion Rate then in effect, the date on which the right to convert the principal amount of the Securities to be repurchased will terminate and the place or places where such Securities may be surrendered for conversion, and (vii) the place or places that the Security certificate with the Election of Holder to Require Repurchase as specified in Section 2.2 shall be delivered. No failure of the Company to give the foregoing notices or defect therein shall limit any Holder' s right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Securities. If any of the foregoing provisions or other provisions of this Article XIV are inconsistent with applicable law, such law shall govern. (2) To exercise a repurchase right, a Holder shall deliver to the Trustee on or before the 30th day after the date of the Company Notice (i) irrevocable written notice of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of the Securities to be repurchased (and, if any Security is to repurchased in part, the serial number thereof, the portion of the principal amount thereof to be repurchased and the name of the Person in which the portion thereof to remain Outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby, and, in the event that the Repurchase Price shall be paid in shares of Common Stock, the name or names (with addresses) in which the certificate or certificates for shares of Common Stock shall be issued, and (ii) the Securities with respect to which the repurchase right is being exercised. Such written notice shall be -87- 92 irrevocable, except that the right of the Holder to convert the Securities with respect to which the repurchase right is being exercised shall continue until the close of business on the Business Day immediately preceding the Repurchase Date. (3) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the Trustee the Repurchase Price in cash or shares of Common Stock, as provided above, for payment to the Holder on the Repurchase Date or, if shares of Common Stock are to be paid, as promptly after the Repurchase Date as practicable, together with accrued and unpaid interest to the Repurchase Date payable with respect to the Securities as to which the repurchase right has been exercised; provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Regular Record Date. (4) If any Security (or portion thereof) surrendered for repurchase shall not be so paid on the Repurchase Date, the principal amount of such Security (or portion thereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate of __% per annum, and each Security shall remain convertible into Common Stock until the principal of such Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (5) Any Security which is to be repurchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (6) Any issuance of shares of Common Stock in respect of the Repurchase Price shall be deemed to have been effected immediately prior to the close of business on the Repurchase Date and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such repurchase shall be deemed to have become on the Repurchase Date the holder or holders of record of the shares represented thereby; provided, however, that any surrender for repurchase on a date when the stock transfer books of the Company shall be closed shall constitute the Person or Persons in whose name or names the certificate or certificates for such shares are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open. No payment or adjustment shall be made for dividends or distributions on any Common Stock issued upon repurchase of any Security declared prior to the Repurchase Date. (7) No fractions of shares shall be issued upon repurchase of Securities. If more than one Security shall be repurchased from the same Holder and the Repurchase Price shall be payable in shares of Common Stock, the number of full shares which shall be issuable upon such repurchase -88- 93 shall be computed on the basis of the aggregate principal amount of the Securities so repurchased. Instead of any fractional share of Common Stock which would otherwise be issuable on the repurchase of any Security or Securities, the Company will deliver to the applicable Holder its check for the current market value of such fractional share. The current market value of a fraction of a share is determined by multiplying the current market price of a full share by the fraction, and rounding the result to the nearest cent. For purposes of this Section, the current market price of a share of Common Stock is the Closing Price Per Share of the Common Stock on the Trading Day immediately preceding the Repurchase Date. (8) Any issuance and delivery of certificates for shares of Common Stock on repurchase of Securities shall be made without charge to the Holder of Securities being repurchased for such certificates or for any tax or duty in respect of the issuance or delivery of such certificates or the securities represented thereby; provided, however, that the Company shall not be required to pay any tax or duty which may be payable in respect of (i) income of the Holder or (ii) any transfer involved in the issuance or delivery of certificates for shares of Common Stock in a name other than that of the Holder of the Securities being repurchased, and no such issuance or delivery shall be made unless and until the Person requesting such issuance or delivery has paid to the Company the amount of any such tax or duty or has established, to the satisfaction of the Company, that such tax or duty has been paid. (9) Reserved. (10) All Securities delivered for repurchase shall be delivered to the Trustee to be canceled at the direction of the Trustee, which shall dispose of the same as provided in Section 3.9. SECTION 14.4 Certain Definitions. For purposes of this Article XIV, (1) the term "beneficial owner" shall be determined in accordance with Rule 13d-3, as in effect on the date of the original execution of this Indenture, promulgated by the Commission pursuant to the Exchange Act; (2) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of the Securities, of: (i) the acquisition by any Person (including any syndicate or group deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the elections of directors, other than any such acquisition by the Company, any subsidiary of the Company or any employee benefit plan of the Company; or -89- 94 (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company, or any conveyance, sale, transfer or lease of all or substantially all of the assets of the Company to another Person (other than (a) any such transaction (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of capital stock of the Company and (y) pursuant to which the holders of 50% or more of the total voting power of all shares of the Company's capital stock entitled to vote generally in the election of directors immediately prior to such transaction have the entitlement to exercise, directly or indirectly, 50% or more of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving corporation immediately after such transaction and (b) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock); provided, however, that a Change in Control shall not be deemed to have occurred if (I) the Closing Price Per Share of the Common Stock for any five Trading Days within the period of 10 consecutive Trading Days ending immediately after the later of the Change in Control or the public announcement of the Change in Control (in the case of a Change in Control under clause (i) above) or the period of 10 consecutive Trading Days ending immediately before the Change in Control (in the case of a Change in Control under clause (ii) above) shall, in the case of each of such five Trading Days, equal or exceed 105% of the Conversion Price of the Securities in effect on each of such five Trading Days or (II) all of the consideration (excluding cash payments for fractional shares and cash payments made pursuant to dissenters' appraisal rights) in a merger or consolidation otherwise constituting a Change of Control under clause (i) and/or clause (ii) above consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market (or will be so traded or quoted immediately following such merger or consolidation) and as a result of such merger or consolidation the notes become convertible solely into such common stock. (3) the term "Conversion Price" shall equal U.S. $1,000 divided by the Conversion Rate (rounded to the nearest cent); and (4) for purposes of Section 14.4(2)(i), the term "person" shall include any syndicate or group which would be deemed to be a "person" under Section 13(d)(3) of the Exchange Act, as in effect on the date of the original execution of this Indenture. SECTION 14.5 Consolidation, Merger, etc. In the case of any merger, consolidation, conveyance, sale, transfer or lease of all or substantially all of the assets of the Company to which Section 12.11 applies, in which the Common Stock of the Company is changed or exchanged as a result into the right to receive shares of stock and other securities or property or assets (including cash) which includes shares of Common Stock of the Company or common stock of another Person that are, or upon issuance will be, traded on a United States national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States and such shares constitute at the time such change or exchange becomes effective in excess of 50% of the aggregate fair market value of such shares of stock and other securities, property and assets (including cash) (as determined by the Company, which determination shall be conclusive and binding), then the Person formed by such consolidation -90- 95 or resulting from such merger or combination or which acquires the properties or assets (including cash) of the Company, as the case may be, shall execute and deliver to the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture) modifying the provisions of this Indenture relating to the right of Holders to cause the Company to repurchase the Securities following a Change in Control, including without limitation the applicable provisions of this Article XIV and the definitions of the Common Stock and Change in Control, as appropriate, and such other related definitions set forth herein as determined in good faith by the Company (which determination shall be conclusive and binding), to make such provisions apply in the event of a subsequent Change in Control to the common stock and the issuer thereof if different from the Company and Common Stock of the Company (in lieu of the Company and the Common Stock of the Company). ARTICLE XV HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY; NON-RECOURSE SECTION 15.1 Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (1) semi annually, not more than 15 days after the Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities as of such Regular Record Date, and (2) at such other times as the Trustee may reasonably request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that no such list need be furnished so long as the Trustee is acting as Security Registrar. SECTION 15.2 Preservation of Information. (1) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 15.1 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list, if any, furnished to it as provided in Section 15.1 upon receipt of a new list so furnished. (2) After this Indenture has been qualified under the Trust Indenture Act, the rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights ,and duties of the Trustee, shall be as provided by the Trust Indenture Act. (3) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them -91- 96 shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 15.3 Reserved. SECTION 15.4 Reports by Trustee. (1) After this Indenture has been qualified under the Trust Indenture Act, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (2) After this Indenture has been qualified under the Trust Indenture Act, a copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 15.5 Reports by Company. After this Indenture has been qualified under the Trust Indenture Act, the Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE XVI IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 16.1 Indenture and Securities Solely Corporate Obligations. No recourse for the payment of the principal of or premium, if any, or interest on any Security and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, employee, agent, officer, or director or subsidiary, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. -92- 97 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. JUNIPER NETWORKS, INC. By: -------------------------------------- Name: Title: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By: -------------------------------------- Name: Title: 98 ------------------------------------ JUNIPER NETWORKS, INC. ISSUER TO NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION TRUSTEE ------------------ INDENTURE Dated as of _________, 2000 ------------------- __% CONVERTIBLE SUBORDINATED NOTES DUE MARCH 15, 2007 --------------------------------------- EX-23.1 4 EX-23.1 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Selected Consolidated Financial Data" and "Experts" and to the use of our reports dated January 17, 2000, in Amendment No. 2 to the Registration Statement (Form S-1 No. 333-96171) and related Prospectus of Juniper Networks, Inc. for the registration of its common stock issuable under the conversion of convertible notes. Our audits also included the financial statement schedule listed in Item 16(b) of this Registration Statement. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Palo Alto, California February 23, 2000 -----END PRIVACY-ENHANCED MESSAGE-----